Short Position

Short position is a position established with an expectation that the price of an asset will go down.

Simply put, you sell an asset, wait for its price to go down, and then buy it again. The difference by which the price has declined is your gain.

In certain situations, you already own an asset, which you then sell hoping for its price to decrease so that you can buy it back cheaper. In other cases (what people refer to when they talk about shorts), you do not have the asset but borrow it from someone. After you buy the asset back cheaper, you simply return it to whoever lent it to you. Again, the price difference is yours to keep.

With derivative instruments, you can go short with neither owning nor borrowing the asset first. With derivatives (a CFD is one type of derivatives), you are exposed to price fluctuations of an underlying asset without actually owning it. In case of a short, you hope that the price of the asset goes down. You may borrow funds to open your position, but you do not borrow the asset itself.

Regardless of which instrument is available to you for a short position, if the price of that asset does go down, you would close it with a profit. If, on the other hand, the price goes up, you’ll get a loss.