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In finance, "short selling" or "shorting" is the practice of borrowing shares of stock and immediately selling them in hopes they will decline in value, allowing you to repurchase them later at a lower price, repay your debt (of stock), and walk away with a profit.

More generally, one who stands to profit from the decline of an asset is said to have a "short position" on that asset, or to be "short [the asset]". Analogously, a "long position" is one that rises with the underlying asset. If Sally owns a lot of gold, one might say "Sally is long gold," since she stands to profit from gold increasing in value.

What is the origin of these terms? I assume that "short sale" came first, and "long" was just the natural opposite, but why was the word "short" used in the first place?

  • Just a logical inference, but... I suppose we can assume long/short are metaphoric here, as they are in long/short time, odds, etc. My guess is they allude to a (price against time) barchart, where shorter bar length = lower share price. Short sellers are those who bet the bars will be shorter in the future (when they'll have to actually buy the stocks they gambled against). Everybody knows that "I'm a bit short at the moment" has long meant "I haven't got much money". So short=less money is well-established, as probably are many similar metaphoric usages. – FumbleFingers Jan 10 '14 at 0:05
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The terms sell short and short position seem to have arisen in US stock and commodity markets about 1850; the earliest use I have found is from The Merchant's Magazine, and Commercial Review, Vol. XXVI, Jan-Jun 1852, and it is already coupled with selling long:

selling short defended

Note that the writer (somewhat disingenuously) equates selling short with a contract for forward delivery. That’s the transaction; what has always been understood by a ‘short’ sale, however, is that the seller does not at the time of sale possess the commodity or stock which is sold. He is in fact, ‘short’ of the good in question, as is explained in this definition from The Bryant and Stratton Business Arithmetic, 1872.

selling short defined

Selling short had already a commercial history in the only somewhat different collocation “selling short weight” or “measure”. The earliest use I have found is from The Gentleman's Magazine and Hiſtorical Chronicle, Vol. XVII, 1748:

ſelling ſhort meaſure

  • That Bryant and Stratton "etymology" is probably just what seemed like a logical explanation to the writer at the time, for an established usage. OED says the short seller was called a bearskin jobber well over a century earlier. They don't mention "bearing the price down" - they say it's probably from the proverb sell the bear's skin before one has caught the bear, and that the later bull may just be a natural contrast. I certainly don't buy bulls 'tossing up' the price as a significant factor. – FumbleFingers Jan 10 '14 at 12:50
  • ...I'm therefore unconvinced "selling short" alludes to the seller being "short" of the stock he's selling. It seems more akin to the other common usage to sell [someone/something] short = to undervalue it. OED gives to set short by , to tell short of : to hold in low estimation. Obs. first usage 1377 – FumbleFingers Jan 10 '14 at 12:56
  • @FumbleFingers I'm quite willing to accept a different etymology for bears and bulls. Sell someone/something short I'm pretty sure is transferred from the commercial sense. The main thing, I think, is that while selling short is usually motivated by expectation of a fall in price, what it meant from the outset and means to this day is selling something you don't have. – StoneyB Jan 10 '14 at 14:03
  • I quite agree that selling something you don't have is key. But in practice you'd normally only be doing that because you think the current price is effectively "too high" (i.e. - your valuation is less than that of whoever you're selling to, which is where you'll eventually make your profit, assuming you're right). – FumbleFingers Jan 10 '14 at 15:21
  • The next thing is to try to decide whether 'short' and 'long' are adverbs or adjectives in 'sell short' etc. – Edwin Ashworth Oct 27 '15 at 8:08
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Perhaps it goes back to the use of tally sticks to record debt in medieval Europe. In this case a stick was used to record the debt. The stick was split in two and the two parties to the transaction each a part. The shorter part was called the foil as was held by the receiver of the funds while the longer part, also called the stock, was held by the advancing the funds. Hence the term stock market which dealt in the trade of debt and possibly the term long and short to identify which side you were trading.
https://en.m.wikipedia.org/wiki/Tally_stick

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