Long Position vs. Short Position: What's the Difference? (2024)

FAQs

Long Position vs. Short Position: What's the Difference? ›

Investors maintain “long” security positions in the expectation that the stock will rise in value in the future. The opposite of a “long” position is a “short” position. A "short" position is generally the sale of a stock you do not own. Investors who sell short believe the price of the stock will decrease in value.

The distinction between going long and going short is brief but important: Being long a stock means that you own it and will profit if the stock rises. Being short a stock means that you have a negative position in the stock and will profit if the stock falls.

Long Position: Buy Low, Sell High

Let's say an investor in India believes that Company A's stock is undervalued and has strong growth potential. The investor buys 100 shares of Company A's stock at Rs. 100 per share, spending a total of Rs. 10,000.

When do I go long or go short? You would normally go long when you believe that the market price will rise and go short if you think it'll fall. Typically, the research that instructs your trading plan will determine whether you should go long or short when getting exposure to an underlying asset.

A trader thinks that Amazon's stock is poised to fall after it reports quarterly results. To take advantage of this possibility, the trader borrows 1,000 shares of the stock from his stock loan department with the intent to short the stock. The trader then goes out and sells short the 1,000 shares for $1,500.

Short selling involves borrowing a security whose price you think is going to fall and then selling it on the open market. You then buy the same stock back later, hopefully for a lower price than you initially sold it for, return the borrowed stock to your broker, and pocket the difference.

Short selling is—in short—when you bet against a stock. You first borrow shares of stock from a lender, sell the borrowed stock, and then buy back the shares at a lower price assuming your speculation is correct. You then pocket the difference between the sale of the borrowed shares and the repurchase at a lower price.

Entering a position that will profit from a rise in price is known as taking a 'long position'. As trading evolved and new financial instruments, such as shares, were created, traders wanted to be able to profit in both rising and declining markets. This led to the concept of 'short positions'.

The risk is that the stock price may drop, which would cause those investors to lose their initial investment. Before you decide to purchase a long position, make sure to do your research and understand the consequences if the trade doesn't go as planned.

Advantages of Long Position

Potential for substantial returns: By taking such positions, investors can benefit from the potential increase in the value of the underlying asset. If the security performs well, investors can realize significant profits.

How to tell if a stock is shorted? ›

Search for the stock, click on the Statistics tab, and scroll down to Share Statistics, where you'll find the key information about shorting, including the number of short shares for the company as well as the short ratio.

There is no set time that an investor can hold a short position. The key requirement, however, is that the broker is willing to loan the stock for shorting. Investors can hold short positions as long as they are able to honor the margin requirements.

Short selling is legal because investors and regulators say it plays an important role in market efficiency and liquidity. By permitting short selling, a strategy that speculates that a security will go down in price, regulators are, in effect, allowing investors to bet against what they see as overvalued stocks.

In stocks, a round lot is considered 100 shares or a larger number that can be evenly divided by 100. In bonds, a round lot is usually $100,000 worth. A round lot is often referred to as a normal trading unit and is contrasted with an odd lot.

The Short Position is a technique used when an investor anticipates that the value of a stock will decrease in the short term, perhaps in the next few days or weeks. In a short sell transaction the investor borrows the shares of stock from the investment firm to sell to another investor.

Short selling means selling stocks you've borrowed, aiming to buy them back later for less money. Traders often look to short-selling as a means of profiting on short-term declines in shares. The big risk of short selling is that you guess wrong and the stock rises, causing infinite losses.

Going long is a popular industry term used to describe the act of buying. On the flipside, going short is a term investors and traders use to describe the act of selling. Traders will go long when they expect that the price of the asset will rise. Alternatively, they go short when they expect that the price will fall.

How does a long put differ from a short put? In a long put, an investor buys a put option, expecting the underlying asset's price to decline. On the other hand, a short put involves selling a set option and obligates the seller to buy the underlying asset at the strike price if assigned.

Open positions can be long or short. Long positions involve owning a security before being sold; they profit when there is an increase in price. Short positions involve borrowing a security before being sold, to be bought back at a lower price: they profit when the security falls in price.

Crypto long and short positions are essentially opened based on the direction you expect the market to go in when you buy a futures contract. Hopes for price increase lead to a long position and short position is opened when you expect the price to go down.