Short position

A direction rather than a possession. On a derivative there is nothing to borrow and nothing to deliver: the contract is written between two parties, one of whom takes the side that gains as the reference price falls. The result is the opening price less the closing price, multiplied by the size of the contract, which is the mirror of a long position and uses the same arithmetic.

The costs are not mirrored, and that is the part most often assumed away. Financing on a currency position depends on the interest rate differential, so the nightly figure on a short is a different number from the one on a long and can be a credit on one side and a debit on the other, or a debit on both once the provider's own charge is applied. A short share contract is debited the dividend adjustment on the ex-dividend date rather than credited it.

The shape of the exposure is the substantive difference. A price cannot fall below zero, so the favourable move on a short is bounded, while there is no ceiling on a price, so the adverse move is not. Losses on a leveraged contract are calculated on the full contract value and are not limited to the amount deposited, and on a short that arithmetic has no natural upper limit at all. Crowding adds to it: when many shorts are closed at once the closing itself is buying, which is the mechanism a short squeeze describes.