How long should you keep a short?

Answer:

The investor has opened a short position sell, provided that the investment is profitable and as long as he or she may count on the profit increase. However, there are several additional factors that may affect the decision of a short seller on when to close their position.

One of the factors to consider interest charged by the broker to credit the shares in the margin account of the investor. The longer the investor holds short, the more interest accumulate. This becomes problematic if the amount of interest paid on the borrowed shares exclude any profit from a short sale. The aim is to keep short while the price of the stock will fall, allowing the investor to redeem the debt number of shares at a lower price and make a profit from the sale transaction, but interest expenses should be taken into account when calculating profit.

Another important factor in determining how long an investor has a short position as large losses, he or she is willing to incur in the event of an increase in stock prices, not reduced. The maximum allowable loss should be resolved prior to any investment. Short sellers must be aware of the increased level of risk involved in short selling in contrast to buying long.

The investor, buying stocks can only support a maximum loss of 100% of their investment, but a short seller, while having a maximum potential profit of 100%, faces a virtually unlimited risk, given that the stock price can theoretically rise infinitely higher prices.

If the short position used to hedge existing long positions, the investor may wish to hold a short for as long as he or she adheres to the opposite position, or at least until he or she does not consider a long position could threaten a significant reduction.

For more specific strategies, see the quick squeeze method.

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