8.1 – Shorting in a nutshell
Shorting is a tricky concept because we are not used to shorting in our day to day transactions. But, in this video, we have elaborated the idea sophistically. Let’s dive in to learn more.
The following video quickly looks at how currency and commodity contracts are structured.
We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- Shorting requires us to sell first and buy later.
- The short trade is profitable only when the closing price is lower than the entry price.
- There would be a loss when the price goes higher than the price at which one has shorted.
- The stop loss in a short trade is always higher than the price at which one has shorted.
- One can only short on an intraday basis in the spot market.
- The short positions cannot be carried overnight in the spot market.
- The short position in the futures market can be carried forward overnight.
- The margins requirement for both short and long trades are similar.
- The M2M computation is also similar for both short and long trades.