Glossary

Short position
A short position describes when an investor sells a security with the promise to buy the security back to close the position. Short positions give traders more flexibility to speculate on a security’s price, allowing you to profit in declining markets.
How to protect a short position

Traders have several options when it comes to protecting short positions. Stop-loss orders are the most common option and are often placed above the security’s current price. This protects you from outsized losses if the price turns bullish and runs against your short position.

Call options are another way to protect your short positions, which grant you the right to buy the asset back at a specified price for a limited amount of time. Although the money required to purchase the call option contract will eat into your earnings on the trade.

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