Long vs. Short

When trading in the markets, individuals buy and sell assets by taking specific positions. These positions are known in the industry as going long or going short.

Going Long (The Buy Position)

Going long describes the act of buying a financial instrument.

  • Expectation: The trader anticipates that the asset's price will rise.
  • Profit Goal: To buy low and subsequently sell high.

Going Short (The Sell Position)

Going short describes the act of selling a financial instrument.

  • Expectation: The trader anticipates that the asset's price will fall, allowing them to buy the asset back later at a lower price.
  • Example: If a trader goes short on EUR/USD, they are expecting the price of the Euro to fall so that they can buy it back at a lower price and realize a profit.

Profit and Loss Mechanics

In all markets, traders make profits when they successfully buy low and sell high. The order in which the buying and selling occurs is irrelevant to the overall profitability of the trade.

A trader will incur a loss if the price moves against their position:

  • Loss Scenario 1: Buying low and selling even lower (failure of a long position).
  • Loss Scenario 2: Selling high and buying back even higher (failure of a short position).

Detailed Summary

Trading in financial markets involves taking specific positions—either going long or going short—based on price expectations. Going long involves buying an asset with the anticipation that its price will rise (buy low, sell high). Going short involves selling an asset first, anticipating that its price will fall, allowing the trader to buy it back later at a lower price. Profit is always generated by successfully buying low and selling high, regardless of the order. Losses occur when the market moves against the trader's position.

Key Takeaways

  • Market positions are categorized as going long (buy position) or going short (sell position).
  • Going Long: Buying an instrument expecting the price to rise (goal: buy low, sell high).
  • Going Short: Selling an instrument expecting the price to fall so it can be bought back cheaper later.
  • In all trading, profit results from successfully buying low and selling high.
  • The sequence of buying and selling does not affect the overall profitability condition.
  • A long position fails (incurs a loss) if the asset is bought low but must be sold even lower.
  • A short position fails (incurs a loss) if the asset is sold high but must be bought back even higher.