Long Stocks: What trading technique is it? Comprehensive guide for traders

When it comes to trading and investing in financial markets, understanding the role of Long positions is essential for beginners. It forms the foundation for profiting from market volatility. Whether you’re a novice or an experienced trader, learning how to use Long and Short orders will help you seize more trading opportunities.

Long Position in Stocks - Understanding Buying to Expect Price Increase

Opening a Long position in stocks means the trader is placing a buy order, expecting the price to rise further. When the price increases from your purchase point, you can close the position by selling to realize the profit from the price difference.

For example, a trader sees positive news about PEAR company, indicating improved earnings. They decide to buy 100 PEAR shares at $350 each, totaling $35,000. This is called “buying low.” When rumors spread and other investors feel positive about the stock, the price rises to $400. The trader then sells the 100 shares at $400, receiving $40,000, and makes a net profit of $5,000.

However, if the market moves against expectations, such as the price falling instead of rising, the trader may need to close the position at a lower price, accepting a loss.

Short Position - Limiting Losses When Stocks Decline

Conversely, a Short position involves the trader initially selling stocks or assets they do not own yet. While this may seem unusual in traditional investing, tools like CFDs make this possible. The trader sells shares expecting the price to fall. When it does, they buy back at a lower price, making a profit from the difference.

Trader Tim hears rumors that a raw material exporter for ORANGE will stop exports. He predicts ORANGE stock will decline. He borrows 100 shares from his broker and sells them at $350, receiving $35,000 immediately. When the rumor spreads and other investors sell, the stock price drops to $300. Tim then buys back 100 shares at this lower price, costing $30,000, and returns the shares to the broker. His profit is $5,000, having sold high and bought low.

Long and Short in Other Instruments

It’s important to note that Long and Short are not available in all financial instruments. Short orders, in particular, are used with derivatives like CFDs, futures contracts (Tfex), and certain digital trading platforms. If you want to benefit from both Long and Short positions, check whether your trading platform allows both.

CFDs Make Long and Short Trading Easier

While shorting stocks in traditional markets involves complex steps like borrowing shares from a broker, CFDs simplify this process. Traders can easily and quickly execute Short positions, with the added advantage of leverage to maximize profit opportunities.

Key Points When Using Long and Short

• Long is effective in bullish markets—buy low, sell high to profit.
• Short allows profit in bearish markets—sell high, buy low.
• Both require caution, as trading involves risks that can lead to financial loss.

A deep understanding of Long and Short positions enables traders to adapt to various market conditions. Whether prices go up or down, you can develop strategies to profit from these changes.