What are Long and Short Positions?

What are Long and Short Positions?

These two terms reflect whether a trader believes a cryptocurrency is going to rise or fall in value.

Cryptocurrency traders 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.

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 trader hopes that the price will increase from a given point. In this case, we say that the trader “goes long,” or buys the cryptocurrency. Consequently, in a short position, the crypto trader expects the price to decline from a given point — The trader “goes short,” or sells the cryptocurrency.

When should a long position be opened?

Traders should go long when they expect the price of a cryptocurrency to increase. You may be interested in going long when you feel the price of a cryptocurrency is about to go up for a while, depending on the time frame with which you are operating. For example, if you are trading on the daily chart and believe that the price will increase during the following days or even weeks, you can go long. You can either buy the asset on a spot exchange or open a long position via futures, options or other derivatives contracts.

When should traders go short?

Traders should go short when they expect the price of a cryptocurrency to decline. You may be interested in going short on a particular cryptocurrency when you expect its price to decline for a while.

As explained above, you should back your decision with solid market analysis. As a rule, short-sellers open their positions when the market has reached an overbought level — i.e., it has increased for a long period and the uptrend might have supersaturated. Also, going short makes sense when the price cannot break a resistance level and starts departing from it.

Where can you go long or short?

You can go long or short on any cryptocurrency exchange or trading platform.

How can margin trading amplify the targets of long and short positions? Margin trading can magnify the potential results of long and short positions thanks to leverage — i.e., borrowed funds.

Going long or short might be lucrative, especially when the cryptocurrency is volatile. Still, professional traders prefer margin trading, as they can amplify potential profits by several times. However, the risks also increase by the same degree, which is why margin trading should be used with caution.

Created on 16th Jul 2021