Weak Shorts

Posted in Finance, Accounting and Economics Terms, Total Reads: 362

Definition: Weak Shorts

Weak Shorts refers to a group of traders who hold short position, and who will quickly exit their short position at the first sign of price strength.

With respect to stock holdings, long positions are those that are owned, while short positions are those that are owed. These are simple tactics that are used to leverage and produce income from a security. So a weak short is basically when a person enters a short position long enough to have a quick gain and then exits the position. So weak shorts won’t take a loss on their short term investment, basically they have a very low risk appetite for their short position. They are investors who have limited financial capacity and hence would not be able to take too much risk on a single short position. A weak short as we know doesn’t like taking risk and hence would place a tight stop-loss order on the short position, so that it can be capped in case of any heightened loss. Another concept similar to this is a weak longs, which are similar to weak shorts but they employ long position.

Let us take an example, An investor shorts a stock at $10 with the expectation that the stock will go down. The next day, the stock trades upwards to $11 and the weak shorts exit their positions with a $1 loss. In ensuing days, the stock trades lower and reaches $9. In this case, the weak shorts have not had the patience to wait out their initial position and have sacrificed whatever gains they would have had on the position.

Weak Shorts are usually done by retail traders as their financial capacity is limited.



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