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October 4, 2022
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Long vs Short – how do they differ? –

Long and short are terms that are often incomprehensible to novice investors. In this article, we will focus on clearing the mystery surrounding these phrases. Every trader should understand the difference between going long and short, and the implications of using them by traders. Long vs short – when do we use which strategy?

What is Long (long position on the stock exchange)

A long position is the behavior of an investor who purchases an asset, such as a cryptocurrency, with the assumption that it will increase in value over time. Remember, however, that investors can also assume long positions on stocks, currencies or derivatives. However, each time we assume an increase in the value of a given asset over time – it can be said that long is therefore associated with a bullish attitude to the market.

A bullish attitude to the long position, source: Geco.one

As you can see, a long can refer to many different instruments – but it functions a bit differently each time. In its most classic sense, however, Long is about buying an asset in order to maintain an investment over the long term. It is the most popular strategy among retail investors. They usually expect the value of the assets they invest in to increase in the long term.

In this approach, the ownership aspect is also important. Remember that when concluding a long position, we are the actual owners of the asset.

What is a short?

A short position occurs when a trader sells an asset with the intention of buying it back later at a lower price. Usually, however, short refers to the sale of an asset that we do not own. Investors who sort believe that the price of an asset (for example BTC) will drop 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 an asset increases, a higher redemption price will result in a loss. It is worth noting that shorting is rather the domain of more experienced traders.

geco.one short exchange

Bearish trend for short, source: Geco.one

An example of the Bitcoin Short mechanism

Now let’s check how Bitcoin Short works. The example below will illustrate the process of earning a short position step by step.

Bitcoin’s price is around $ 7,400. You expect negative information for the cryptocurrency market, which will also negatively affect the BTC price. You decide to sell 10 BTC at a price of $ 7400 apiece.

Suppose you are trading on a margin trading platform (such as Geco.one) where you trade with a leverage of 1: 100. This means that you must first make a deposit of 1% of your short funds. 1% of the value of $ 74,000 (the price of 10 Bitcoins sold) is $ 740.

As predicted, due to negative market information, the BTC price dropped to $ 7354. At this point, you decide to close your position and take profits. Let’s summarize how much you have earned.

$ 7400 – $ 7354 = $ 46

We have to multiply this value x10 (the amount of BTC we shorted). Finally, we earned $ 460 on the investment.

Long vs short, margin trading exchange

Interestingly, long and short positions can often be assumed based on the aforementioned financial leverage. Margin trading is able to effectively raise our profits, regardless of the type of position. Remember, however, that increased profits go hand in hand with the increased risk of losing funds in the event of an investment failure.

long vs short

An interesting interface solution for short and long positions is presented by the aforementioned platform Geco.one. The Polish project transparently allows us to establish and monitor both types of positions on the market. What’s more, despite the possibility of using a leverage of 1: 100, Geco.one also allows us to trade the deposit itself, without the need to “activate” the leverage mechanism. Thanks to this, you can test shorts and longs in safer conditions.

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