Short Position Risk
Traders can also take up the opposite approach, the short position. Under this approach, you sell shares (or options) as a first step. This exposes you to substantially higher market risks.
For most traders, the long position is better known whether it involves all cash or margin (or other forms of leverage).
Short positions are used in a variety of different ways. Selling stock, a strategy called short selling, is a complex and potentially high-risk strategy. Under this approach, your brokerage firm borrows the shares of stock and lends them to you to sell. So you have to pay interest on the borrowed stock while also being exposed to market risk. You hope the price of stock will fall so you can close the position at a profit. If the price rises, the transaction ends up in a loss.
Most people new to trading will be likely to avoid short selling as an acceptable strategy. The risk level and cost of shorting stock are too high for most individuals; and with the use of options, it is possible to play a bear market without needing to go short.
By Michael C. Thomsett