When an investor or trader enters a short position, they do so with the intention of profiting from falling prices. This is the opposite of a traditional long position where an investor hopes to profit from rising prices. There is no time limit on how long a short sale can or cannot be open for. Thus, a short sale is, by default, held indefinitely.
Closing Out A Short Position
There are, however, a couple conditions in which the short may be covered prior to the investor closing the trade. a margin call could mean shares are liquidated and the short position is closed out. An investor must have a margin account to short stocks. A broker will issue a margin call if the value of the account falls below a certain threshold, and the broker can liquidate any position. On the other hand, the broker (or lender of the shares) may call the shares due for reasons other than a margin call; however, this is uncommon.
An investor may choose to close out a short position for a number of reasons, including having reached their price target or if the losses look unrecoverable. Meanwhile, if a short position is used as a hedge against a long position the investor may choose to maintain the short for as long as the stock is owned or for as long as they choose to hedge the risk.
How a Short Sale Works
A brokerage firm lends shares or contracts to the customer who engages in the short sale. The firm uses its own inventory, another customer's margin account or another lender to supply the shares or contracts to the shorting customer. The investor shorting a stock typically pays interest on that loan, and if a borrowed stock pays a dividend, the investor is also responsible for paying the original owner the value of the dividends.
In theory, you could keep a short position open indefinitely to take advantage of a falling market. In practice, you can be required to "buy to cover" this position if the lender demands the shares or contracts back, but again, this is uncommon.
