What is a "short position" in a futures contract?

• A. It involves selling a commodity anticipating price increase
• B. It refers to buying a commodity at a deficit
• C. It means agreeing to sell a commodity expecting a price decrease
• D. It indicates holding contracts over a long term

Answer: (C)

A "short position" in a futures contract involves the agreement to sell a commodity with the expectation that its price will decrease in the future. When a trader enters a short position, they are essentially betting that the market price will fall. If the price does decline, the trader can buy back the contract at a lower price before delivery, thereby realizing a profit. This strategy contrasts with going long, where a trader buys a contract with the anticipation that the price will rise.

This understanding of short positions is crucial for trading strategies in the futures market, as it allows traders to hedge against potential losses or to speculate on market movements effectively. A short position is a way to capitalize on downward price movements, making it a key concept in commodity trading and risk management.