What is short and long trading?
Trading glossary may be a tough one. There are a lot of words which are interchangeable with each other. They are also regular words that we use every day. But when we step into the world of trading they change meaning completely. That can be quite confusing. Such are the words “long” and “short” trading. What do they mean in the world, completely different from everyday life?
Long and short are the terms used by professional traders to indicate whether a certain trade in worth buying ir selling. It also indicates the action of buying or selling itself. Long trade is the one that initiated by buying and the assets is expected to rise in the price and sold for trader’s profit. A short trade is the one when a trader sells off his assets with the intention that very asset back after they fall in price. That would also come to be profitable for said trader.
Long trades are the one where a trader bought an asset. Some of the brokers even went as far as not to have BUY button in their interface. Instead they have a LONG button for the same purpose. Trader also quite frequently use the term long as in owning an asset. So, saying “I am long Microsoft shares” means that the traders owns said shares. To go long means that a trader is interested in purchasing a certain asset.
Short trading on the other hands has a whole different concept. Of course, there is the same goal in mind, but short trading stands for the much more complicated process than a long one. First a trader has to sell chosen assets and wait for the price for them to drop lower than the one those his sold them for. After that the assets are bought back and not sold until they are back up in price again. Most of the financial markets allow traders to go short. Most of the stocks are quite prone to be short.
So that is the difference between going short and long in trading. Simple. But there is a certain beauty to it.
- by Anna K.