SHORT FUNDS

Short in an asset means investing in such a way that the investor will profit if the value of the asset falls. This is the opposite of a more conventional "long" position, where the investor will profit if the value of the asset rises. There are a number of ways of achieving a short position. The most fundamental method is "physical" selling short or short-selling, which involves borrowing assets and selling them. The investor will later purchase the same number of the same type of securities in order to return them to the lender. If the price has fallen in the meantime, the investor will have made a profit equal to the difference. Conversely, if the price has risen then the investor will bear a loss. The short seller must usually pay a fee to borrow the securities, and reimburse the lender for any cash returns such as dividends they were due during the period of lease. To profit from a decrease in the price of a security, a short seller can borrow the security and sell it, expecting that it will be cheaper to repurchase in the future. When the seller decides that the time is right, the seller buys the same number of equivalent securities and returns them to the lender. The act of buying back the securities that were sold short is called covering the short, covering the position or simply covering. A short position can be covered at any time before the securities are due to be returned. Once the position is covered, the short seller is not affected by subsequent rises or falls in the price of the securities, for it already holds the securities that it will return to the lender. The process relies on the fact that the securities are fungible. An investor therefore "borrows" securities in the same sense as one borrows cash, where the borrowed cash can be freely disposed of and different bank notes or coins can be returned to the lender.