Short and long (short and long position) are trading strategies that involve making money on the difference in quotes.
What is short and long on the stock exchange
Short
A short or short position is entered by a trader when he is trying to profit from a falling market in the short term. To do this, he borrows securities from a broker and sells them on the market in anticipation of a fall in price. When they fall, the trader buys them again and returns them to the broker, and keeps the difference in price.
Short is a trading strategy in which a trader makes a profit from a security by selling during its fall.
For example, you have borrowed a share of a company that is currently trading at $100 and you are selling it. You expect it to drop in price to $85. When this happens, you re-buy the stock and give it to the broker. You keep the $15 difference.
Shorting is often used in volatile markets, such as cryptocurrencies. The holders of these positions are called bears, as they are short.
Long
During a long position, a trader buys shares in the hope that they will rise in the long term. Then in the future he will be able to sell securities at a better price.
Long (long position) – a trading strategy in which a trader buys securities and then sells them when the price rises.
For example, you are sure that the company’s shares will grow, and now is the best price to buy them. You buy securities at $30, and when their value reaches the desired $50, you sell them.
Long traders are called bulls because by buying and holding stocks, they cause prices to rise. That is, they play for a raise.
It is worth noting that the name of these positions does not come from the time of the transaction. Both short and long can open and close both within an hour and within a day.
Short and long: which is more risky
It is believed that a short position is more risky, so this trading strategy is not recommended for novice traders.
As we described above, during this strategy, the trader borrows shares from the broker. And their prices may rise, contrary to forecasts. Then the novice player will have to buy securities at a higher price in order to “pay off” with the broker.
If you still want to take a risk by playing for a fall, we recommend placing a stop loss – this way you can limit losses.
Long is also not without risks. You can never wait for stock prices to go up, and at best not lose too much.
Short and long at the same time
Although short and long are opposite trading strategies, they are sometimes used at the same time.
For example, a long and a short position is opened with the boxing technique. That is, you simultaneously take the same number of shares in short and long. If you foresee a fall, sell long and keep short. If the forecast does not come true and the stock does not fall in price, you buy the long back. And when the price really drops, you sell short, cover the costs and make a profit.
It should be noted that exchanges may prohibit the simultaneous use of short and long due to the high risk.
FAQ
What is a short?
This is a trading strategy in which a trader borrows shares from a broker, sells them, and then buys them at a lower price. The shares are returned to the broker, and the difference from the sale is returned to himself.
What is long?
This is a trading strategy in which a trader buys stocks and sells when their price rises.
Which strategy is more risky?
The game for a fall, that is, shorts, is not recommended for novice traders – if you miscalculate, you can lose everything and remain indebted to the broker.
Disclaimer: This news is not investment advice. Assess the risks yourself before making any investment decisions.
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