Short Sales

A Short Sale is when you sell an asset you don’t own (by borrowing it), hoping to buy it back later at a lower price.

In Beancount terms, this means holding a negative number of units held at cost.

The Constraint

By default, Beancount enforces a constraint: you cannot have a negative inventory of lots.

• If you hold 10 GOOG {100 USD}, you can sell at most 10.
• If you try to sell 15, you get an error.

Enabling Short Sales

To allow short selling, you generally need to relax this constraint or use a dedicated account where the negative balance is expected.

Method 1: Dedicated Short Account

Separate your “Long” and “Short” positions.

2024-06-01 * "Short Sell"
  Assets:Brokerage:Cash          1000.00 USD
  Liabilities:Brokerage:Shorts    -10 GOOG {100.00 USD}

Here, we use a Liability account to track the short position. A negative liability is… well, usually a liability is already negative (credit). Wait.

In Beancount:

• Assets are Positive.
• Liabilities are Negative.

If you are Short, you owe the stock. It is a Liability. So Liabilities:Brokerage:Shorts should have a negative number of units.

Closing the Short (Covering): You buy the stock back.

2024-07-01 * "Cover Short"
  Liabilities:Brokerage:Shorts     10 GOOG {100.00 USD} @ 90.00 USD
  Assets:Brokerage:Cash          -900.00 USD
  Income:CapitalGains            -100.00 USD

• You “buy” 10 units to neutralize the -10 units.
• Cost Basis match: {100.00 USD}.
• Price paid: $900.
• Profit: $100.

Caveats

• Dividends: If you are short, you pay dividends instead of receiving them. This is an Expense.
• Interest: You usually pay margin interest on the borrowed value.