What are Long Position and Short Position in trading

The Meaning of Opening Long and Short Positions in the Market

For those who want to understand the basics of trading, both beginners and experienced traders need to master these two types of orders, as they are key to increasing profit opportunities from price changes in the market.

Difference Between Long Position and Short Position

What is a Long Position

Opening a Long Position means that the trader is “buying” the asset/derivative contract with the expectation that the price will rise. This position aims to be closed later by selling, to profit from the increase in price.

A Long Position works well when the price trend is upward because you can “buy low - sell high.” For example, if a trader opens a Long Position on an asset priced at 41 Baht, it means they bought the asset at 41 Baht, expecting the price to go up. When the price adjusts to 42 Baht, they then close the position by (selling) and profit from the price difference of 1 Baht.

However, if the price moves down instead of up, and they opened a Long at 41 Baht and closed at 40 Baht, the trader would incur a loss of 1 Baht because they bought high and sold low.

What is a Short Position

Opening a Short Position means that the trader is “selling” the asset/derivative contract first, expecting the price to decline. They will close the position by buying back to profit from the decrease in price.

Short Positions are effective when the price trend is downward because you can “sell high - buy back low.” For example, a trader opens a Short Position at 41 Baht (by selling first at this price). When the price drops to 40 Baht, they close the position by buying back, making a profit from the 1 Baht difference.

Conversely, if they short at 41 Baht but the price rises to 42 Baht, the trader must close the position by buying back at a higher price, resulting in a 1 Baht loss.

Importantly, Short Positions are not available for all instruments but are used on Derivatives, Contracts, CFDs, and other instruments that permit it. Investors should check the feasibility on each platform beforehand.

Practical Examples of Using Long and Short Positions

Example 1: Long Position with Stocks (Buy Low - Sell High)

Suppose an investor receives news that PEAR company has better earnings this year than last year. They believe the stock price will increase and decide to open a Long Position by buying 100 shares at 350 USD (with an investment of 35,000 USD).

Later, when good news spreads, PEAR stock price rises to 400 USD. The investor sells 100 shares at this price (receiving 40,000 USD) and makes a profit of 5,000 USD from this Long Position.

Example 2: Short Position with Stocks (Sell High - Buy Low)

Another investor hears that the target country for supplying raw materials to ORANGE company will suspend exports. They expect the stock price of this company to fall and decide to open a Short Position.

They start by selling 100 shares at 350 USD (receiving 35,000 USD). After negative news impacts the stock, ORANGE’s stock price drops to 300 USD. They buy back 100 shares at this price (paying 30,000 USD) to close the position.

The result is they sold at 350 USD and bought back at 300 USD, making a profit of 5,000 USD from this Short Position.

Applying Long and Short in Actual Trading

With an understanding of Long and Short Positions, traders can profit in both bullish and bearish markets. They do not need to wait only for an uptrend but can also anticipate and profit from price declines.

Opening a Long Position is suitable for those expecting prices to rise, while Short Positions are for those expecting prices to fall. Choosing the correct position according to the market trend is a key to increasing trading success chances.