The essence of trading in financial markets is to make a profit on the difference between the purchase price and the sale price. At the same time, you can play on the rise of stocks or currencies, opening a long position (long), and for a fall, opening a short position (short).
What is a long position
The principle of opening long positions ("long position" or simply "long") by a trader is as follows: "Buy cheaper, sell more expensive." In this case, the trader makes money on the difference (margin) between the buy and sell prices, i.e. he buys currency or stocks cheaply and sells at a higher price.
An example of a long position: you buy shares at the beginning of the month for 100 rubles. (open a position), and at the end you sell for 120 rubles. (close the position). Thus, the profit was 20 rubles. from one share.
The meaning of this investment strategy is expressed as “buy and hold”. Such positions are opened with the predicted growth of the market in the future and the investor's faith in the growth of the value of the security. If the trader's forecasts do not come true, he gets a loss.
To open a long position, the broker is given a “buy” order, and to close - a “sell” order. Holders of long positions are called "bulls".
Long positions are used in the financial market much more often than short ones.
What is a short position
A trader opens short positions ("short position" or simply "short") in the expectation of making a profit on falling quotes. Unlike long positions, in this case the process of buying and selling is changed over time (buy and sell orders are changed).
Such positions are opened if a trader predicts a fall in shares, i.e. he borrows shares from a broker and sells them (this is called a "sell short") at the current price, and then buys shares at a reduced price and gives them to the broker as a debt (i.e. closes a short position - "cover short sell "). The price difference remains with him in the form of profit.
An example of a short position: you borrow shares from a broker and sell them at the current market price - 120 rubles, then the shares begin to fall in price and you buy them at 100 rubles, give the broker a debt and get a profit of 20 rubles. per share.
Therefore, another name for a short position is short sale, it allows you to make a profit on the fall of the stock. These traders are referred to as "he was shorting" or "he is in a short position", and the holders of short positions are called "bears". By law, only qualified investors can take a short position.
It should be borne in mind that if in the case of long positions the profit is unlimited, then in the case of short ones it cannot be more than 100%. a stock cannot be worth less than zero. But on the other hand, losses on a short position are also limited by these limits. Short positions are a more risky strategy because the stock market is growing in the long run.
