DOCS: Document shorts in terms of actual finance terms (#1908)

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David Walker
2025-01-25 08:41:16 -08:00
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@@ -14,11 +14,24 @@ So these concepts below should seem similar, but won't be exactly the same.
## Positions: Long vs Short
First off, note that _all_ transactions have a flat commission fee, so
high-frequency trading is not a good strategy.
When making a transaction on the stock market, there are two types of positions: Long and Short.
A Long position is the typical scenario where you buy a stock and earn a profit if the price of that stock increases.
Meanwhile, a Short position is the exact opposite.
In a Short position, you purchase shares of a stock and earn a profit if the price of that stock decreases.
This is also called 'shorting' a stock.
In a Short position, you borrow shares of a stock to sell and earn a profit if the price of that stock decreases.
This is also called 'shorting' a stock. The proceeds from the sale are held as
collateral, called 'margin'. You also have to add additional margin equal to
the current value of the stock - this is the cost to 'purchase' the short.
When you close a short position, you buy back the shares to pay back the securities loan.
You then get the margin back, minus whatever was used to repurchase the shares.
So, your profit is still the change in price times the number of shares.
Beware that, unlike Long positions which have unlimited upside and limited
downside, shorts have limited upside and unlimited downside, and selling a
sufficiently underwater short can cause your money to go negative.
Shorting stocks is not available immediately, and must be unlocked later in the game.