The ultimate goal of financial market participants is profit. To do this, traders conduct different types of transactions using short or long positions. We will tell in this article what this means, why such transactions are needed and how they work.
To profit from price fluctuations, traders open long or short positions. Potential profit can be increased by trading with leverage.
What is a long position?
A long position in margin trading means opening a position to earn on a price increase. Through technical or fundamental analysis, a trader assumes that the price of a particular cryptocurrency will rise. Therefore, he buys an asset at the current price to sell it later at a higher price and make a profit on the difference.
Those who enter long positions are called bulls in trading jargon because buying and holding assets cause prices to rise and face up, like bull’s horns.
For example, you bought ETH with the confidence that the asset will grow in value. After a specific time, the cryptocurrency rose in price, and you sold ETH for more than you bought, fixing the profit.
What is a short or short position?
A short position in margin trading means opening a position to capitalize on a falling price. The trader assumes that the price of a particular cryptocurrency will fall. Therefore, he sells the asset at the current price to repurchase it cheaper later and make a profit on the difference.
Similar to a bear attack, short traders are called bears because they sell assets and cause prices to fall, the same as a bear is looking down.
A short position is considered riskier, so this trading strategy is not recommended for novice traders. We have already written about short trading before – you can read about this strategy in our blog. If you decide to take a risk by opening a position to lower the price, we recommend placing a stop loss – this way, you can limit losses.
It is difficult to unequivocally state that one particular trading strategy is better and more profitable. Some prefer to trade only long, while others prefer to trade short and make quick profits. Some open both long and short at the same time. There are many opportunities to make a profit in trading. It is important to remember that both positions are not without risks.
Sometimes, a long trade can be expected for a very long time – and never happen. There are many examples where an asset has not made a profit, even after 30 years. Short, in turn, may not “play” because the forecast about the market’s fall did not come true.
Final thoughts
In the world of margin trading, there are two basic types of positions: long and short. A long position is where the trader buys an asset and then sells it later at a higher price, while a short position is a reverse – the trader sells an asset and then repurchases it later at a lower price.
So which one is better? Well, it depends on the market conditions. If prices rise, a long position will usually make more money. On the other hand, if prices are falling, then a short position will usually be more profitable. Of course, things are never that simple – there’s always the risk that prices could move against the trader, resulting in a loss. But that’s the nature of margin trading: it’s a risky business, but one that can offer high rewards for those who know what they’re doing.
