eToro is one of the only how to short eToro to allow its users to trade both ‘long’ positions to leverage rising prices and’short’ positions to profit from falling asset prices. This article will walk you through how to short a stock on eToro, and also provide some important points that all traders should be aware of before engaging in this type of trading.
The process of shorting an asset involves borrowing the security in question and then selling it on the market, in the hopes that its price will decline. Traders make profits when the price of the asset falls, but will suffer losses if the price rises (although these can be limited).
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In order to trade an asset on eToro you must first ensure that your account is funded. Once your account is ready to go, you can find the asset you wish to short by using the search feature on the top of the platform. Then, click ‘trade’ and select’sell short’ to open your position.
Some of the main risks involved in shorting assets are unlimited losses if the asset’s price rises, interest costs if you hold a position overnight and the risk that a security could become more difficult to short if it is highly correlated with other assets. However, if you manage your risk and use this strategy intelligently, it can provide an effective way to hedge against long positions and increase diversification within your portfolio. This is why it’s an essential part of any advanced traders toolkit.