What Is a Short Position? Definition & Example

Going short means positioning to profit from a price decrease. In crypto this is almost always done through a perpetual future: you open a short contract, and profit equals (entry price − exit price) × position size. Sell 20 units at $100, buy back at $88, and you have made $240.

Shorts are structurally more dangerous than longs, and it is worth being precise about why. A long can only lose 100% — price cannot go below zero. A short has no theoretical ceiling, because price can rise indefinitely. In practice liquidation closes the trade long before infinity, but the asymmetry is real and shows up most sharply in low-float assets where a squeeze can move price several hundred percent in hours.

That squeeze dynamic deserves attention. When a heavily-shorted asset rises, shorts get liquidated, and each liquidation is a forced buy that pushes price higher, liquidating more shorts. The feedback loop is why short squeezes are so violent and why crowded short positioning is a genuine risk factor rather than a comfort.

On the other hand, shorts are often the side receiving funding, because retail positioning skews long and positive funding flows from longs to shorts. On a persistently positive-funding pair, a short is paid to wait.

Shorts serve three purposes: expressing a bearish view, hedging an existing spot holding without selling it, and forming the perp leg of a delta-neutral carry trade. The third is the most common institutional use and involves no directional view at all.