📈📊SHORT POSITION
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Now this is a term you've probably heard when hanging out with friends
who've dabbled with trading! A short position (or short) means selling an
asset with the intention of rebuying it later at a lower price. Shorting is
closely related to margin trading, as it may happen with borrowed assets.
However, it's also widely used in the derivatives market and can be done
with a simple spot position. How does it work, you ask? Let's see, shall
we?
When it comes to shorting on the spot markets, it's quite simple. Let's say
you already have Bitcoin and you expect the price to go down. You sell
your BTC for USD, as you plan to rebuy it later at a lower price. In this
case, you're essentially entering a short position on Bitcoin since you're
selling high to rebuy lower. Easy enough. But what about shorting with
borrowed funds?
This is a bit more complicated. You borrow an asset that you think will
decrease in value. You immediately sell it. If the trade goes your way and
the asset price decreases, you buy back the same amount of the asset that
you've borrowed. You repay the assets that you've borrowed (along with
interest) and profit from the difference between the price you initially sold
and the price you rebought.
Still a bit confused? Let's see a practical example. We put up the required
collateral to borrow 1 BTC, then immediately sell it for $10,000. Now
we've got $10,000. Let's say the price goes down to $8,000. We buy 1 BTC
and repay our debt of 1 BTC along with interest. Since we initially sold
Bitcoin for $10,000 and now rebought at $8,000, our profit is $2,000 (minus the interest payment and trading fees). Boom, that's how you profit
from the price going down!
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