What is the meaning of ‘Long’ and ‘Short’ in Crypto Trading

0
8
bitcoin-logo-first-peer-to-peer-decentralized-currency-money-Satoshi Nakamoto
Bitcoin

There are various kinds of terms and slangs in crypto trading just like obtainable in stock trading.

Today, I will be explaining what ‘Short‘ and ‘Long‘ means and how you can still make profit whether the market is going up or going down.

What is Long or Longing

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. A long trade is initiated by purchasing with the expectation to sell at a higher price in the future and realize a profit. This is kinda straight forward and it is usually done on spot market of stock or crypto trading platform. Let me give a mathematical example of this:

If you go long on 1,000 shares of XYZ stock at $10, the transaction costs you $10,000. If you are able to sell the shares at $10.20, you will receive $10,200, and net a $200 profit, minus commissions. This is the desired result when going long. When you go long, your profit potential is unlimited since the price of the asset can rise indefinitely. If you buy 100 shares of stock at $1, that stock could go to $2, $5, $50, $100, etc., although day traders typically trade for much smaller moves. The flip-side to an increase in price is a decrease. If you sell your shares at $9.90, you receive $9,900 back on your $10,000 trade. You lose $100, plus commission costs.

What is Short or Shorting

In a short position, the crypto trader expects the price to decline from a given point — i.e., the trader “goes short,” or sells the cryptocurrency. A short trade is initiated by selling, before buying, with the intent to repurchase the stock at a lower price and realize a profit. The Trader realize a profit if the price they pay is lower than the price they sold for. For example, if you go short on 1,000 shares of XYZ stock at $5, you receive $5,000 into your account, but this isn’t your money yet. Your account will show that you have -1,000 shares, and at some point, you must bring that balance back to zero by buying at least 1,000 shares. Until you do so, you do not know what the profit or loss of your position is.

Further explaining ‘shorting’, If you can buy the shares at $4.50, you will pay $4,500 for the 1,000 shares. You originally received $5,000 when you first went short, so your profit is $500, minus commissions. If the stock price rises and you repurchase the shares at $5.40, you pay $5,400 for those 1,000 shares and you lose $400, plus commission. Now, the potential for losing is not fixed as the stock you expect to drop in price keeps rise, and you will have to pay back for your lose to exit your position.

LEAVE A REPLY

Please enter your comment!
Please enter your name here