What you'll learn
- Work out the P&L of a long and a short stock trade, net of fees
- Explain how a short sale works: borrow, sell, buy back, return
- Name the extra risks of shorting: no loss ceiling, borrow fees, dividends, squeezes
Every trade starts with a direction. A long position makes money when the price rises; a short position makes money when it falls. This track leaves the wheel behind and covers trading in general — stocks first, then options, then the habits that keep an account alive. If options are new to you, the free Options Foundations track starts from zero.
Going long: buy, then sell higher
You buy 100 shares of $XYZ at $48.20 — $4,820 of stock. A few weeks later it trades at $52.70 and you sell. The gross gain is (52.70 − 48.20) × 100 = $450. Commissions and small regulatory fees come off the top: at an illustrative $2.10 for the round trip, you keep $447.90 — a 9.3% return on the $4,820 you put in.
A long trade, start to finish
Buy
−$4,820.00100 shares of $XYZ at $48.20
Sell
+$5,270.00100 shares at $52.70
Fees
−$2.10Two commissions plus a regulatory fee on the sale
Net P&L
+$447.90(52.70 − 48.20) × 100 − 2.10
Selling short: sell first, buy back later
To go short, your broker lends you shares that belong to someone else. You sell them at today's price, and the cash stays in your account as collateral. Later you buy to cover — you purchase the same number of shares and they go back to the lender. If the price fell in between, you bought back cheaper than you sold and keep the difference.
Put in order
Put the life of a short sale in order.
- Your broker locates shares you can borrow
- You buy the shares back (buy to cover)
- You sell the borrowed shares at today's price
- Borrow fees accrue every day the short stays open
- The shares return to the lender and the trade is closed
A short trade, start to finish
Sell short
+$15,080.00200 borrowed $ABC shares at $75.40 — the cash is held as collateral
Carry
−$14.87Borrow fee of 3% a year on $15,080, for 12 days
Buy to cover
−$14,220.00200 shares at $71.10
Fees
−$2.40Two commissions plus a regulatory fee
Net P&L
+$842.73(75.40 − 71.10) × 200 − 14.87 − 2.40
Fig. 1Interactive
The costs that eat small edges
| Cost | Long | Short |
|---|---|---|
| Commission | Often $0–$1 per order | Same |
| Bid-ask spread | Paid when you enter and exit | Same |
| Regulatory fees | A few cents on the sale | A few cents on the opening sale |
| Borrow fee | None | Daily — from about 0.3% a year to 50%+ on hard-to-borrow names |
| Dividends | You receive them | You pay them to the lender |
| Account | Cash or margin | Margin account required |
Make a guess
You buy 300 shares at $21.50 and sell them at $22.10. Your broker charges $1 per order. What is your net P&L, in dollars?
What would you do?
A tempting short
$XYZ has run from $40 to $95 in a month on hype. You think it's overvalued and consider shorting 100 shares at $95. The borrow fee is 45% a year and 30% of the float is already sold short.
Try it in YieldCove
Log your next stock trade — long or short — with its fees. YieldCove keeps the net P&L, the return and the holding time for you.
Key terms in this lesson
Each term has its own glossary page with a picture and related terms.
- Long positionGlossary entry
- Owning shares (or contracts) you bought. It gains when the price rises; the most it can lose is what you paid.
- Short sellingGlossary entry
- Selling borrowed shares now and buying them back later to return them. It gains when the price falls — and its loss has no ceiling if the price rises.
- Buy to coverGlossary entry
- The purchase that closes a short sale: you buy back the shares you borrowed so they can be returned to the lender.
- Borrow feeGlossary entry
- The yearly rate a broker charges to lend shares for a short sale, accrued every day the short is open. Hard-to-borrow stocks can cost 20% a year or more.
Key takeaways
- Long P&L = (exit − entry) × shares; short P&L = (entry − exit) × shares — both minus fees.
- A short sale borrows shares, sells them, then buys them back; borrow fees and dividends are owed while it is open.
- A long can lose at most what it cost; a short has no loss ceiling, which is why squeezes and gaps matter so much.
Checkpoint
Knowledge check
Answer to lock in what you just learned.
You short 100 shares at $60 and buy them back at $54. Ignoring fees, what is your P&L?
Which cost applies only to a short position?
What is the maximum possible loss on a short stock position?
Keep going
6 more lessons of Trading basics, plus every PRO chapter
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Educational content only — not financial advice. Options involve risk of loss and are not suitable for every investor.