III.2. The concept of a short transaction. How to make a short trade?

Short – from English “short”. This name is given because in classical trading, the price drop usually occurs faster than the formation of a growing trend. Thus, a Short is a transaction for the sale of an asset by selling it. There is a difference between selling with collateral when you sell previously purchased instruments that you have, and without collateral when you sell on loan by borrowing money from a broker.

In order to make a Short trade, you enter data on the number of lots, the required sale price or the market price for immediate sale to the order entry window of your trading terminal. You can also specify a number of auxiliary transaction parameters, for example, to sell without collateral, you need to click the “Use credit” checkbox.

A short transaction without collateral requires some explanation. A short trade is possible on liquid instruments. If the broker does not consider the instrument attractive enough, he will prohibit short selling and the “Use credit” checkbox will be blocked.  By making a short trade without collateral, you essentially borrow from a broker the right amount of an instrument, for example, shares at a price you have determined, hoping to buy them at a lower price during a fall. By buying instruments previously sold in short, you repay your debt to the broker, because you return to him the same amount of papers as you borrowed. Your gain is the difference in the higher sale price and the lower purchase price of the shares. The broker’s gain here is manifested in the commission for the loan and the receipt of liquid securities at a lower price, i.e. he expects a profit as the securities increase in price. Short trades without collateral require some preparation and accurate calculation, because the result of a downward movement is often unpredictable, and the price may quite unexpectedly rush up, not down. Such transactions require the mandatory use of stop-loss orders.

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