Unlimited Loss Risk
When you buy a stock, the most you can lose is what you paid. When you short, there is no ceiling. Here is why short losses are unlimited, how gaps make stops unreliable and ways to limit the damage.
No ceiling
| Buy at $20 | Short at $20 | |
|---|---|---|
| Best case | Unlimited gain | Gain of $20 a share if it goes to $0 |
| Stock goes to $40 | +100% | −100% |
| Stock goes to $100 | +400% | −400% |
| Worst case | Lose $20 a share | No limit |
Hypothetical example.
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