A short position is created when a trader sells an asset or security with the intention of repurchasing it later. A trader may take a short position on a security if they believe that the price of that security is likely to decrease substantially in the near future. A short trade is initiated by selling before buying with the intent to repurchase. A fundamental problem with short selling is the potential for unlimited losses. When you purchase a stock (or take a long position), you can never lose more than your initially invested capital. But if you short a stock at 10$, the most you could make on that transaction is $10. But if the stock goes up to $1,000, you’d have to pay $1,000 to close your initial $10 position.