O M G!!!!When you enter a short trade you are selling borrowed...

O M G!!!!

When you enter a short trade you are selling borrowed shares or shares that you do not own, and buying it back when the price has fallen. The proceeds of the sale is held by your stock broker until the borrowed shares are returned when you close your position by buying shares in the market place. The profit or loss for the trade is then credited to or debited from your trading account.

Always remember the risk. If a short position is opened, the loss is unlimited, as the price can theoretically increase to infinity whereas the maximum profit is limited to the original proceeds of the sale. Whereas if a trader takes a long position, the risk is limited to the total cost of the shares. The potential profit is unlimited, as the price can theoretically increase to infinity. Also note that there are share borrowing costs associated with opening a short position.