When an investor is pessimistic (bearish) on the price of an asset, on expectation its price will fall, he is then said to have taken a short position. However, having a short position in an asset may signal a few different meanings. A short position in a share of stock usually indicates that the investor has sold shares he doesn’t own (by borrowing them against a premium) with the intention of giving them back later to the lender. In this case he purchases other identical shares, later, at a lower price, and hereby closes out the short position, taking the difference for profit.
However, selling a futures contract, for instance, means taking a short position in the underlying asset. In the case of a futures, the promise such position holds means selling a certain quantity of a commodity (gold, wheat, oil, sugar..) at a particular price in the future. In general, any position taken in a portfolio can be regarded as either a long or short position with respect to the asset in question.
Examples of short position in derivatives include short option, short CDS, short futures, etc.
A short position may be a covered or uncovered position.
The opposite of a short position is a long position.
