Long And Short Position Definition

New traders often get confused by the long and short jargon that many professional traders use on a daily basis. These two jargons are important to know because many traders use them and if you are hanging out with the traders' community (be it forex, cryptocurrency, or stock), it will be an advantage to know it even if you are a complete beginner so that you will understand what they talking about when it comes to trading. So the definition of that two jargon can be seen below here in which I will make the explanation as simple as possible.

Long

So, what is long in trading? Dicks (2010, p. 22) wrote that long is when many buyers buy the currency which eventually moves up the price. It is like the economic way where the supply is being sapped by the buyers, thus, the price goes up. This means that if you take a long position, you expect that the market price will go up, and if the price goes up, you make a profit from it. Also, when you take a long position you buy the base currency and sell the counterpart currency.

For example, you trade the EURUSD pair at the price of 1.05000 and you analyze that the price will go to 1.10000 (such as support and resistance) so you decide to open a long position and set your target profit at the price of 1.10000. Hence, when you open a long position which is a buy position means that you are buying EUR with USD at the price of 1.05000 and if the price reaches 1.10000 where you set your target profit, then, you will get a profit from it.

Short

Now short is the contrast to long which means sell. In the short position, you are trying to gain a profit from the bear market. A bear market is where the market is going down or we can say it is a downtrend. Dicks (2010, p. 22), in his book, wrote that a short position is where many participants of the forex market sold currency than bought. Still connected with supply and demand however in this short position many people want to offer their goods and thus the price drops.

For example, if you look at the chart of EURUSD and you see that the chart itself at the price of 1.10000 is going down with your analysis (such as support and resistance) showing that the price has a high probability to go 1.05000, then, you can expect yourself to open a short position where you sell the base currency, that is, EUR and on the other hand you buy the counterpart currency, that is USD. After you take a short position and the price of EURUSD reaches 1.05000 from 1.10000, then you gain profit from it.

Conclusion

Simply, a long position is where a trader takes a buy position by buying a base currency and selling a counterpart currency where this can be seen if a trader is trying to take a long position on EURUSD where you buy EUR with USD currency. On the other hand, if you take a short position means that you are trying to sell the base currency and buy the counterpart currency where this can be seen from the example of EURUSD, you sell EUR and then buy USD.

Written by Andre I.

Reference

Dicks, James. 2010. Forex Trading Secrets: Trading Strategies for the Forex Market. New York: McGraw Hill.