Going Short

The term going short refers to the act of opening a short position – making an investment which would profit from a decrease in the value of an asset.

When you go short, you borrow the assets from an asset lender (typically a broker) at the going rate and then sell them immediately at the going rate. If and when the value of the asset decreases, you buy identical assets at the lower going rate and return them to the lender. The difference between the higher rate at which you sell the borrowed assets and the lower rate at which you buy identical assets to return to the lender – minus possible interest charges on the loan – makes up your profit.

Example: A stock is selling at 180 Swiss francs per share. You go short on that stock by borrowing 1000 shares and then selling those shares at the going rate of 180 francs per share or 180,000 francs in total because you believe that stock will lose value. You receive 180,000 francs for the sale, but you still owe the lender the 1000 shares. If the price of the stock slid to 176 francs per share, you could buy 1000 shares for 176,000 francs and return these to the lender. The remaining 4000 francs is your profit.

Typically, the assets which brokers lend to short sellers are taken from an asset pool made up of assets owned by other brokerage customers. Brokers may charge you interest on the asset loan when you go short.

Most brokers, including all Swiss online trading platforms, give you the options of going long (buy) or going short (sell) on investments.

See also: Going long

More on this topic:
Swiss stock broker comparison

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