Long and short, are terms often misunderstood by novice traders. In this article, we will focus on dispelling the mystery surrounding these phrases. Every trader should understand the difference between long and short positions, and the implications of their use by traders. Long vs short - when do we use which strategy? What is long position on the stock exchange The long position is the behavior of a trader, who buys an asset, for example a cryptocurrency, with the assumption that it will increase in value over time. One should remember, however, that investors can also establish long positions on shares, currencies or derivatives. Each time, however, we assume that the value of a given asset will increase in time - so we can say that long is associated with a bullish approach to the market. A bullish long position, source: Geco.one As one can see, long can refer to many different instruments - but each time it works a bit differently. In its most classic form though, long is about buying an asset in order to maintain an investment for a long period of time. It is the most popular strategy among retail investors. They usually expect that in the long term the value of the asset they invest in will increase. The ownership aspect is also important in this view. Remember that when you take a long position, you are the actual owner of the asset. What is a short position on the stock market? A short position occurs when a trader sells an asset with the intention of buying it back later at a lower price. Usually, short refers to selling an asset that you do not own. Traders who short believe that the price of an asset (for example, BTC) will fall over time. If this happens, they can buy the asset back at a lower price, which will give them a profit. If, on the other hand, the price of the asset rises, the higher repurchase price will result in a loss. It is worth noting that shorting is rather a domain of more experienced traders. Bearish trend for short positions, source: Geco.one Example of Bitcoin Short mechanism Now let's see how Bitcoin Short works. The following example will illustrate step by step the process of making money on a short position. The price of Bitcoin is around $7400. You expect negative news for the cryptocurrency market, which will also negatively affect the price of BTC. You decide to sell 10 BTC at a price of $7400 a piece. Let's assume that you use a margin trading platform (such as Geco.one) to trade, where you trade with a leverage of 1:100. This means that you must first pay a deposit of 1% of the shorted funds. 1% of the value of $74,000 (the price of 10 bitcoins traded) is $740. As you predicted, due to the negative market news, the price of BTC has dropped to $7354. At this point, you decide to close the position and realize your profits. Let's summarize how much you managed to earn. $7400 - $7354 = $46 This value must be multiplied x10 (the amount of BTC that you shorted). In the end we earned $460 on the investment. Long vs short, margin trading Interestingly, long and short positions can often be established based on the previously mentioned leverage. Margin trading is effectively able to increase our profits, regardless of the type of position established. Keep in mind, however, that increased profits are accompanied by an increased risk of loss of funds in case of failure of the investment. An interesting interface solution for establishing short and long positions is presented by the aforementioned Geco.one platform. The Polish project in a transparent way allows us to establish and monitor both types of positions on the market. What is more, despite the possibility of using a leverage of 1:100, Geco.one also allows us to trade on margin only, without the need to "activate" the leverage mechanism. This allows you to test shorts and longs under safer conditions. Tags geco.one long BTC long margin trading long term long vs short short BTC short margin trading
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