Selling a Buy Position vs. Entering a Sell Position

Selling a Buy Position vs. Entering a Sell Position

Selling a Buy Position (Closing a Buy Position)

• Definition: This involves selling an asset you previously bought.

• Action: You're exiting a position you already hold.

• Outcome: Realizes a profit or loss based on the difference between the purchase price and the selling price.

Entering a Sell Position

• Definition: This involves selling an asset you don't currently own, with the expectation of buying it back later at a lower price.

• Action: This is often referred to as "short selling."

• Outcome: Potentially profits if the asset's price decreases, but risks unlimited loss if the price increases.

Key Differences

Feature 

Asset ownership

Market outlook

Risk profile

Terminology

Selling a Buy Position  

Owns asset

Bullish (expecting price rise)

Limited to initial investment

Closing a long position

Entering a Sell Position

Doesn't own asset

Bearish (expecting price fall)

Potentially unlimited loss

Opening a short position

In essence:

• Selling a buy position is about realizing a profit or loss on an asset you already own.

• Entering a sell position is a more speculative strategy, betting on a price decline without owning the asset.

Important Note: Short selling is a complex strategy with significant risks. It's generally recommended for experienced traders.