When Do Short Sellers Have to Cover Their Position

If you're a short seller, when do you have to cover your position? What forces you to cover your position and exit your short trade? But before we go any further, make sure you hit the subscribe button and give this video a thumbs up so that you get notified of all of my future videos. Because I've got new trading content coming out all the time and I don't want you to miss a thing. Well, there's basically three reasons why as a short seller you would want to cover or need to cover your position. The first one, and the most common frankly, is when you get an exit signal from your own trading system. If you systematic trader like I am, you're going to get a signal to enter your short trade. You're going to signal to exit your short trade. That might be an exit in profit, or it might be exiting by hitting your stop loss, but either way, it's like a systematic signal for you to get out of your trade. My main short system, called Slippery Dip, which is available to my students in the trader Success system, enters weak stocks when the market is declining. It sets a profit target so that when the stock really collapses, you get out quickly with a profit and it has a stop loss. So if it moves significantly against you, you get out as well. So that's the first reason why a short seller would have to cover their short position if you get a signal to exit from your own trading system. The second reason that you might have to cover your short position is if your stock gets called back. So when you're selling stocks short, you borrow them from your broker and the broker gets them from fund managers or other big shareholders, other large traders on their books that they've got arrangements with. They borrow them and give them to you. You short sell them. But if the owner of those stocks want them back, they can call them back. And you have to then buy those stocks, give them back to the broker who gives them back to the original owner. Now, just because the person you borrowed them from wants them back doesn't mean you necessarily have to cover your short position and give them back. Because as soon as they notify the broker they want their shares back, the broker will try and borrow those shares from somewhere else for you so that you don't have to cover your short position. But sometimes it does happen. Your shares get called back and you do have to close the position. So that's the second reason why why you might have to cover your short position. The third reason why you might have to cover your short position really is only if you're not managing your risk properly and this is if you get a margin call, if your position moves against you a long way, the stock that you've shorted goes up or some of your other positions move against you, you might get a margin call and you might be forced to cover your position to reduce the risk in your account to bring your margin requirement back, back in line with your equity in your account. So really three main reasons why you might have to cover your short position in my trading the systematic approach that I teach in the trader success system. The primary reason why you're generally going to be covering your shorts is because you get a signal from your own trading system to exit that trade. So you buy it back, close the position and you're done. So I hope that helps. My name is Adrian Reed. This is Enlightened stock Trading. I'll see you in the next video on shorting. Bye for now. It.