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Simple English definitions for legal terms
short position
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A quick definition of short position:
A short position is when an investor borrows stock to sell it, but hasn't bought it back yet to give back to the lender. It's like borrowing a toy from a friend to play with, but you haven't returned it yet. This is a risky move because if the stock price goes up instead of down, the investor will lose money.A more thorough explanation:
A short position refers to the position of an investor who has borrowed stock to make a short sale but has not yet purchased the stock to repay the lender. In simpler terms, it means that the investor has sold shares they don't own, hoping to buy them back at a lower price and make a profit.
For example, let's say an investor borrows 100 shares of XYZ company and sells them for $50 each, hoping that the price will drop. If the price does drop to $40, the investor can buy back the shares for $4,000 and return them to the lender, making a profit of $1,000.
Short positions are often used by investors who believe that a stock is overvalued and will decline in price. However, short selling can be risky because if the stock price goes up instead of down, the investor will lose money.