Short position

Going short means opening a position by selling. You gain if the price falls and lose if it rises. It is the opposite of a long position.

In forex, every trade involves two currencies, so short is always relative. Selling EUR/USD means selling euros and buying dollars: you are short the euro and long the dollar at the same time. With CFDs, you do not need to borrow anything to go short; you simply open a sell trade, and the broker handles the rest.

Example

Illustrative figures: you sell 1 standard lot of EUR/USD at 1.0900. Each pip is worth 10 dollars.

• Price falls to 1.0860: a 40-pip move in your favour, +400 dollars before costs.
• Price rises to 1.0950: a 50-pip move against you, minus 500 dollars.

You enter at the bid price and exit by buying at the ask, so the spread works against you on short trades just as on long ones.

Things specific to short positions

• Swaps: overnight financing depends on the interest rate differential. If the currency you are short pays higher interest than the one you are long, you usually pay swap each night.
• Unlimited upside risk in theory: a price can fall only to zero, but there is no ceiling on how far it can rise. A stop-loss limits this in normal conditions, though gaps can still cause larger losses.
• Short in shares: for share CFDs, short positions may also incur borrowing costs, and corporate actions such as dividends are usually debited from short positions.

Common misconception

Some beginners see shorting as more dangerous or somehow less legitimate than buying. In forex the two are symmetrical, since being short one currency means being long another. See what is a CFD.