Trading · 64 / 86 · 3 min
Shorting
A short is a bet that the price will fall. You can be wrong by more than you planned, because a rising price has no neat ceiling.
You can be wrong by more than you planned, because a rising price has no neat ceiling.
A worked case
Someone shorts because a fall looks obvious. The borrow cost runs every day. The price rises. The loss is not capped by the price they started from. The obvious fall was a story. The borrow was a bill.
The bet
You borrow the asset, sell it, and hope to buy it back cheaper. The difference is the hope. Fees and the borrow cost eat it the whole time you wait.
The cost of being wrong
If the price rises, the buy-back costs more. A short squeeze is other people doing that at once. The loss can grow past the money you first posted if the venue lets the position run.
Do not short because a crowd is angry at a coin. Anger is not a price.
A fall has a floor. The rise you are wrong about does not.
A short sells an asset you borrowed, hoping to buy it back cheaper. The hope is the gap. The bill is the borrow, every day, plus the fees, plus the fact that a rising price has no neat ceiling. Crypto shorts became famous in reverse: people who were sure a token was a scam watched it rise for longer than the borrow lasted, and the loss was larger than the price they started from.
The 2022 crash also ran the other way. Funds that were effectively short volatility, or leveraged long, were carried out. Three Arrows Capital, a hedge fund that had been loud about its bets, failed in the same season and left a crater in the lenders who had funded it. The lesson is not a direction. The lesson is that borrowed size plus a story is how a firm dies in public.
Include the borrow in the hope before you call a fall easy. If you cannot name the cost of being early, you are not early. You are exposed.
Read it yourself
These links are the record. They are not a recommendation, and they are not instructions. A news story or a court paper can still be wrong about a detail. The check does not change because a famous name is in the story.
Apply the check
Open a question. The line is about this topic. It is not a verdict that anything is safe.
Whoever lends you the asset, and the exchange.
The lender, who can recall it. The price, which does not care.
A rise, plus the borrow. There is no neat maximum.
Check yourself
Is the most you can lose on a short limited to your first stake?
Not always. A rise can demand more margin, or close you at a much worse price.
After this you can include the borrow cost and an ugly rise in the hope, before you call a fall easy.