The essence of long and short positions — two opposing bets in trading strategies

What is a position? Simply put, a position is the size of your investment in a certain asset, representing a bet on the market direction. In financial trading, the two most common types of positions are long and short.

Long Position: Bullish on Assets, Profit from Price Rise

A long position is straightforward — you believe the asset price will rise. Traders or investors directly purchase the asset, expecting to sell it at a higher price after the price increases and profit from the difference.

For example: You buy 1 Bitcoin at $20,000, expecting it to rise to $25,000. When the price indeed increases, you sell the Bitcoin and, before fees, make a profit of $5,000. This is the logic of a long position — buy low, sell high.

Short Position: Bearish on Assets, Profit from Decline

A short position is completely opposite. You think the asset price will fall, so you borrow the asset from a broker, sell it on the market, and buy it back after the price drops to return it. The difference is your profit.

For example: You borrow 10 shares of a company at $100 per share and sell them, receiving $1,000. If the stock price drops to $80, you buy back the 10 shares for $800 and return them, keeping a $200 profit (excluding fees).

Risk Differences: Limited for Longs, Unlimited for Shorts

The risk characteristics of these two positions are entirely different.

Long positions have risks limited to your initial investment. In the worst case, if the asset price drops to zero, you lose all your principal, but losses cannot exceed the amount invested.

Short positions face theoretically unlimited risk. Since asset prices can rise infinitely in theory, if the price surges, your losses could far exceed your initial margin. For example, if the borrowed asset suddenly skyrockets 10 times, your loss would be more than 10 times your initial investment.

Understanding the meaning and differences between long and short positions is fundamental but crucial for any trader — it determines how you allocate risk and choose market direction.