What is Short and why do traders need to understand it deeply

Short (Sell) and Long (Buy) orders are fundamental tools in trading that allow investors not to rely solely on bullish markets. Today, we will clarify this concept so that both beginners and experienced traders can fully benefit from price volatility.

What is the Difference Between Short Position and Long Position

What is Short - In brief, it means placing a sell order first.

A Short (Short Position) order is a decision to sell an asset in a downward price trend. Traders will place an existing sell order with the hope that the price will continue to decline, causing the asset’s value to drop further. They then buy back at a lower price, making a profit from the difference.

In contrast, a Long Position works the opposite — traders place buy orders when the price is low and hope the price will rise so they can sell at a higher price. This is the traditional buy low, sell high strategy that most people are familiar with.

Why is Short Important

What is the significance of Short orders? The simple answer is: it opens up opportunities for traders to profit even in a bear market because they don’t have to wait for prices to rise significantly. If you think a stock or coin will decline, you can do so.

However, Short is not applicable to all instruments — it is limited to certain derivatives such as futures contracts and other instruments or securities. Traders should verify whether their platform allows Short trading before proceeding.

Example of Opening a Short Position in Stocks

Imagine you hear news that ORANGE company is facing supply chain issues, which might lead to poor earnings. You believe the stock will be sold off (downtrend).

You decide to open a Short at a price of 350 THB per share, with a volume of 100 shares. You place a sell order for 100 shares and wait for the price to fall.

Later, the news confirms the downturn, and ORANGE stock drops to 300 THB per share. This is when you close the Short by buying back 100 shares. You profit from the difference: 50 THB × 100 shares = 5,000 THB.

Example of Opening a Long Position in Stocks

Compared to Short, suppose you hear good news that PEAR company has excellent earnings this year. You think the stock price will go up.

You open a Long by buying 100 PEAR shares at 350 THB each, spending a total of 35,000 THB.

When the good news is confirmed and the stock rises to 400 THB per share, you decide to sell all your shares and make a profit of 50 THB × 100 shares = 5,000 THB.

When Long or Short Goes Wrong

The important thing to remember is that your predictions are not always correct.

If you open a Short at 41 THB expecting the price to fall, but it rises to 42 THB, you need to close the Short to cut losses. In this case, you lose 1 THB per share.

Similarly, if you open a Long at 41 THB but the price continues to decline to 40 THB, you must close the position to limit losses, resulting in a loss of 1 THB per share.

Summary

What is Short? In short, it is a tool that allows traders to profit from declining markets. Like any financial instrument, it carries high risk. Understanding the difference between Short and Long is a crucial first step for all traders, both experienced and beginners. Practice with small amounts before trading larger sums in the real world.