Shorting stocks or “selling a stock short” occurs when an investor borrows shares from a brokerage house and sells them to another buyer of the same stock. In order to exit the position, the investor must buy those shares back, called “covering” your position.
When you short a stock, your downside is unlimited because stocks can keep going up, and you can lose greater than 100%.
In the Hedge Fund Guide we dig into many different types of shorts but some of the most popular types include:
- Competitive & Structure
- Short-term Catalyst
- Distressed Balanced Sheets
- The Falling Giant
- Valuation Shorts
- Revenue Recognition Shorts