Understanding Long and Short Positions in Global Trading

What is a Long Position and When Is It Suitable

Long Position refers to a trader placing a buy order, expecting the asset’s price to rise. This strategy is based on the principle of “buy low - sell high.” When the price increases as anticipated, the trader closes the position with a profit.

Long Positions are generally applied to various derivatives, including CFDs, futures contracts, and other assets that allow for upward price speculation.

Example of Using a Long Position: Suppose an investor analyzes and believes that PEAR stock will increase. They buy 100 shares at 350 THB each, totaling 35,000 THB. Later, the price rises to 400 THB, and the investor sells all shares, making a profit of 5,000 THB. Conversely, if the price drops and the trader closes the position at 40 THB, they would incur a loss of 1 THB per share.

Short Position: Profit Strategy from Falling Prices

Short Position is a trading technique opposite to long. The trader initially sells the asset, expecting the price to decline. When the price drops, they buy back at a lower price, earning the difference as profit.

Short Positions operate on the principle of “sell high - buy low” and are useful for profiting in declining markets. However, not all derivatives permit short selling; traders should check the platform’s conditions beforehand.

Example of Using a Short Position: An investor assesses that ORANGE stock will decrease. They open a short position by selling 100 shares at 350 THB, receiving 35,000 THB. When the price drops to 300 THB, they buy back 100 shares at this price, costing 30,000 THB, and close the position with a 5,000 THB profit. Conversely, if the price rises to 42 THB, they would incur a loss of 1 THB per share.

Comparison Between Long and Short

Long Position is suitable for rising markets, where traders have a clear expectation that the asset will increase in value. Short Position is used when anticipating a decline.

The main difference is that a long position profits when prices go up, while a short position profits when prices go down. Both strategies carry risks of losses if the market moves against the trader’s expectations.

Considerations and Risks

Derivative instruments like CFDs offer flexibility to trade in both rising and falling markets through fast transaction systems and leverage to amplify potential gains. However, leverage involves high risk; traders may lose all or more than their initial investment.

It is essential to thoroughly review risk warnings and platform terms before engaging in trading with long or short positions.