In forex, a short position in trading is a trade that earns investors profits in such a way that when the market value of the asset falls, investors are in profit by selling their position. This is the opposite of the more common long position, where the investor will profit if the market of the underlying asset moves up in price, hence allowing the investor to sell at a higher price for profits.

Investors who focus on short trading have various methods to take a short position. The simplest method is through short-selling, where the short seller borrows or buys an asset and sells it. The short seller is required to buy the same quantity of the asset later to return it to the lender. If the market price of the asset decreased during that time, the short seller will earn a profit that equals the price difference.

Short positions may also be created via a futures contract, forward contract, or options contract, whereby the short seller takes on the responsibility and the right to sell an asset at a predetermined price on a future date. If the asset’s price drops below the contracted price, the short seller can purchase it back at a profit.

The following approaches can help identify short targets

Fundamental analysis: Evaluating a company’s financial performance can assist you in determining whether its stock might be prone to a decrease in price. In identifying short-sale opportunities, certain traders search for firms that have experienced a downtrend in earnings per share (EPS) and sales growth, anticipating that the company’s stock will similarly decline hence boosting their short entry position.

Technical analysis: Short patterns in a stock’s price movement can also help investors decide if it could be on the cusp of a downtrend.

Thematic: Short approach involves betting against companies whose business models or technologies are deemed outdated which can be more of a long game but can pay off should the prediction prove correct.

This strategy consists of wagering against businesses that are considered to have obsolete models or technologies, which may require a longer time frame but can yield significant returns if the prediction on analyzed short is correct.