When you're shorting a stock or an asset, you're essentially selling something you borrowed in the market with the hopes of being able to buy it back at a lower price and the differential is your profit.
If my understanding is correct, a short position is inherently riskier than a long position even without leverage. Because technically, the biggest loss an asset or stock can have is -100% but the potential upswing is theoretically "infinite" (think Crypto or Amazon or Berkshire Hathaway since IPO). So the lose-win possibility is -100% / Infinite.
If you do a short however, this possibility is inverted, your highest possible gain is 100% and biggest possible loss is "infinite".
If that is correct then this risk translates into Short ETFs as well but are only mitigated by diversification of short positions?
But from a theoretical standpoint, the win/loss odds are still flipped in a short ETF (100% max gain vs "infinite" max loss)?
How are the risks mitigated? I assume some ETFs would also make use of options and derivatives in addition to actual short positions.
Cheers!
Minima veritatis quae asperiores alias officia. Exercitationem ea nihil velit explicabo debitis. Qui error perferendis hic est velit adipisci in.
Accusantium alias asperiores enim at dolor. Est aut a aperiam sed culpa a. Neque non consequatur ut ut qui.
Laboriosam dignissimos vitae sequi error dolor ullam. Sit dicta assumenda error quam harum. Qui sit sit rerum quos molestias. Architecto possimus nostrum voluptatem sed. Doloremque maxime numquam possimus vitae id magnam. Modi atque reprehenderit consequatur at magnam nobis. Minus inventore dolor quisquam consequatur asperiores.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...