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Paul Tracy

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Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

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Updated September 30, 2020

What is Net Short?

In finance, net short refers to holding more short positions than long positions in a given security, sector or portfolio. Net short is the opposite of net long.

How Does Net Short Work?

For example, let's assume an investor owns 4,000 shares of Company A, 2,000 shares of Company B and 1,000 shares of Company C. Her portfolio is net long 7,000 shares at this point.

The following day, she shorts 3,000 shares of Company X, 3,000 shares of Company Y and 3,000 shares of Company Z for a total of 9,000 shares. At this point, her portfolio is now net short by 2,000 shares (7,000 long - 9,000 short).
 

Why Does Net Short Matter?

Going net short in a security, sector or portfolio means that the position will now make more money when prices decline and will generally lose money when prices increase. Typically, experienced investors go net short when they feel that earnings estimates are too optimistic or a particular security/sector is overvalued.

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