Short selling

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A brief overview of short selling

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Short selling

  1. 1. Short Sellingby fundsacademy.com
  2. 2. What is Short Selling?• When an investor bets on the price of an asset falling• The opposite of buying shares or ‘going long’
  3. 3. What transactions are involved?• Investor short sells an asset - To do this they borrow the asset from a broker• To close the position the investor buys the asset (buy to cover) on the market at current prices• Investor returns the asset to the broker
  4. 4. Short selling transaction flow:
  5. 5. How is P&L calculated?• An investor short sells shares, below are the P&L outcomes when the position is closed:• Price has risen – The trade makes a loss• Price has fallen – The trade makes a profit
  6. 6. What are the reasons for short selling?• Speculation: to gain exposure to risk• Hedging: to reduce risk on existing long positions
  7. 7. What risks are involved?• Unlimited exposure: while long positions can only fall to zero in theory the price an asset can rise to is unlimited.
  8. 8. Now take a read of below article before finally taking the quiz!Visit www.fundsacademy.com for free lessons Find us on twitter @fundsacademy

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