Long or short? That is the question. When it comes to trading, we call long positions the buy orders that are placed by users who want to benefit from the ascending price of an asset — in this case, cryptocurrencies. On the flip side, short positions are sell orders that are typically placed in bearish markets.
While the concept of long and short is simple, understanding the principles behind long vs. short trading is imperative for every user.
Cryptocurrency users often use industry-specific jargon that is not fully understood by newcomers. While “longs” and “shorts” are not the most technical terms — in fact, they are at the core of trading — we’ll explain the two concepts, especially for newcomers, who are likely flooding the crypto market amid the devaluation of fiat currencies due to aggressive stimulus backed by governments and central bankers.
If you are new to Futures Trading, sign up now to claim your Trading Bonus!
In a nutshell, long and short positions reflect the two possible directions of a price required to generate a profit. In a long position, the crypto user hopes that the price will increase from a given point. In this case, we say that the user “goes long,” or buys the cryptocurrency. Consequently, in a short position, the crypto user expects the price to decline from a given point — i.e., the user “goes short,” or sells the cryptocurrency.
While buying and selling is typical for spot exchanges, you can go long or short on a cryptocurrency without buying or selling it. This is possible on derivatives exchanges that offer futures, options, contracts for differences, and other derivatives products. When you trade these derivatives, you get exposure to cryptocurrencies via long and short positions but without “physically” owning or dealing with them.
You will see more long positions versus shorts in a bullish market, as more users want to benefit from the price ascension. When the market is bearish, short positions generally exceed the long ones. However, this is only an observation and not a rule to follow. Professional users usually buy the dips and sell the rips — i.e., they open long positions when the price retreats from recent peaks and sell the cryptocurrency when the price tests resistance levels.
Differences in Short vs. Long Positions
Short and long positions are antagonistic in nature. When a long trade is generating profits, a short trade on the same digital asset is depleting the balance.
Also, the psychology of bulls and bears differs in the sense that bears tend to be more conservative, while bulls like to risk and experience new strategies. However, these are only stereotypes. Short sellers are also taking risks during bullish markets.
Can I Go Short or Long in All Financial Markets?
Yes. Users go long and short in all markets. In fact, this is the very definition of trading, so you can’t do otherwise, irrespective of the market.
If you trade derivatives, there are more complex forms of long and short. For example, if you trade options, you use several combinations of long and short.
Options are contracts that give holders the right (but not the obligation) to buy or sell an underlying asset at a predetermined strike price, on a specific date or prior to it. They are quite popular in all financial markets. As a rule, users use call options to go long and put options to go short.
However, they can also mix these. For example, users can short-call positions as well as put positions. If you short a call option, you are bearish on the outcome of that specific call option, which is bullish. Therefore, it means you are bearish on the price of the underlying asset. In a similar fashion, you can go long on both call and put options.
Long and short positions are the essence of trading, and users strive to understand the forming trends to make the right decisions. Still, going long or short is only half of the job, as finding the best entry point is also very important.
Finally, some crypto exchanges provide margin trading, which can greatly amplify the targets of long and short positions. However, you should be aware that the risk when using leverage is higher than when trading with your funds alone.
Cryptocurrencies are subjected to high market risk and volatility despite high growth potential. Users are strongly advised to do their research and invest at their own risk. BitMart will do its best to list only high-quality coins, but will not be responsible for your investment losses.
All content produced by BitMart is intended solely for educational purposes. This should not be taken as financial or investment advice. Individuals are advised to perform due diligence before purchasing any crypto as they are subject to high volatility.
Article is closed for comments.