(FINANCE) a situation in which an investor owns financial instruments (shares, bonds, financial derivatives
, etc.) that will make the most money IF some other thing declines in value.
Therefore, one always has to take a short position on something in particular. A short position on gold means the investor expects gold to decline in value in the near future, and has bought various things to make money if it does.
Some ways to take a short position on X include:
(1) buying a put option
(2) writing a call option
(3) borrowing X and selling it (shorting a stock
#3 is the classical way to take a short position. It was dangerous because a skillful trader could squeeze the shorts
using a corner