In derivatives trading, there are two types of positions that traders can choose, Long and Short. Traders can choose to buy crypto by choosing a long position or selling crypto by choosing a short position. But besides buying and selling, long and short positions also have their own meaning. The terms long and short are generally used in derivatives trading, futures, and options. Let’s learn more about using a long and short position.
In a long position, traders expect the prices to rise so traders will get profit from the increased price. When a trader chooses a long position the trader has a faith that the current market condition is bullish or the trend is rising according to the analysis conducted by the trader. This causes the trader to be confident in taking long positions and hoping for profit when the price turns out to be in accordance with the trader’s predictions.
On the other hand, in a short position, traders expect to get profit from falling prices of an asset contract in the future. Traders choose short because they believe that future market conditions will decline. Choosing a short position is generally more complex than buying crypto in a long position. The concept of a short position is indeed quite difficult to understand but the process is actually not much different from choosing a long position.
Start with traders borrow crypto from exchanges or brokers to sell on the market prices at that time. Then the trader will have a short position with the exchange that must be closed in the future. if the price drops, traders can buy a number of crypto at a price that is cheaper than the price when first sold in the market. The excess cash from this will be a profit for traders.
There are lots of variants of long and short positions that traders can choose to get the maximum profit. This of course also needs to be balanced with the provision of sufficient knowledge and experience and mature analysis. With experience, traders can also find out the advantages and disadvantages of each position before being able to implement it into their trading strategy.
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Also published on Medium.