going short
Going short means selling something you have borrowed, hoping to buy it back cheaper later and pocket the difference.
In plain English
Uncle Fidelis at the market in Onitsha used to borrow bags of rice from a bigger trader every festive season, sell them off quickly at the going price, then wait for the price to crash after the rush, buy back the same quantity for less, return the bags to the bigger trader, and keep the difference in his pocket. Everyone thought he was mad for selling something he did not even own, but that is exactly the game called going short.
In the stock market, going short works the same way. You borrow shares you do not own, from your stockbroker or another investor, and sell them at today's price. If the price falls as you expected, you buy the shares back cheaper, return them to whoever lent them to you, and keep the difference as profit.
Say a trader on the Nigerian Exchange believes a listed company's shares are overpriced at ₦120 each. She borrows 1,000 shares through her broker and sells them immediately, pocketing ₦120,000. Weeks later the price drops to ₦90. She buys back 1,000 shares for ₦90,000, returns them to the lender, and walks away with ₦30,000 before fees.
The danger is that shares can rise instead of fall, and there is no ceiling on how high a price can climb. If that same trader is wrong and the price rises to ₦180, she must still buy back the shares to return them, spending ₦180,000 to cover a position she sold for ₦120,000, a loss of ₦60,000.
This is why going short is treated with more caution than buying and holding. A Nigerian professional in London watching the pound weaken against the dollar might short a currency pair in the same spirit, betting on a fall rather than a rise. It is a bet against the crowd, and it pays only when the crowd turns out to be wrong.
An investor shorts 500 shares of a company at ₦200 each, receiving ₦100,000. The price later falls to ₦150. She buys back 500 shares for ₦75,000, returns them, and keeps ₦25,000 as profit before charges.
Questions people ask
Can ordinary Nigerian investors go short on the Nigerian Exchange?
Short selling is not widely available to retail investors on the Nigerian Exchange the way it is on markets like the London Stock Exchange, since it needs a system for borrowing shares that is still developing locally. Most Nigerians who short sell do so through international brokers offering access to foreign stocks or currencies.
Why would anyone sell something they do not own?
Because the goal is not to keep the item but to profit from its price falling. You are borrowing it temporarily, selling high, and planning to buy it back low before returning it, with the gap between the two prices as your reward.
What is the biggest risk of going short?
There is no limit to how high a price can rise, so your potential loss is technically unlimited, unlike buying shares where the most you can lose is what you paid. This is why going short suits experienced investors who watch their positions closely.
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