What are “long” or “short” trades?
Long and short are two of the basic terms that new traders should be aware of when entering a market. Many people who enter the trading world are often overwhelmed by the extensive vocabulary and all the other things that they need to learn. It is important to develop your foundation of knowledge at your own pace and to prioritize the most important information first.
Long trades are initiated by buying an instrument with the intention to achieve profits by selling at a higher price in the future.
Short trades are initiated by selling (before buying), with the intent to achieve profits by repurchasing the instrument at a lower price.
Individuals who day trade frequently refer to the words “buy” and “long” interchangeably with one another. (In this case, “long” is used as a verb.) You will see various software and resources doing the same. When a person goes long on a given asset (meaning they buy), the potential for profit is unlimited because the rise in price is theoretically infinite, but your potential for losses is capped at the asset price going to $0.
On the other hand, those who day trade and “sell” or “short” are those who are actively preparing that the price of the asset will decrease in the future. They will then buy them back (or cover the short) at a lower price, so that the difference between the two prices becomes their profit, less any differences in commission fees. In most markets, you can do both “short” and “long” actions based on your analysis and assessment of what is coming up in the future.
It is important to remember that “long” and “short” are just another two terms that describe actions you can take in a financial market. There is absolutely no need to stress out and perceive these terms as being more complex than they actually are. New traders should understand that long trades are initiated by buying an instrument, with the intent of making profits by selling in the future. Short trades are initiated by selling an instrument first, and then realize profits by buying it back when the price is lower in the future.