What is Long and Short in Trading – is a question we quite frequently get asked.
A lot of people think ‘Long’ means an investment that is made for the long term and ‘Short’ is an investment made for short term.
That isn’t true.
A ‘long’ trade is made with the expectation that the price would rise higher in the future and profit would be made.
A ‘short’ trade is made with the expectation that the price would fall in the future and profit would be made from the fall in price.
Those who are new to the stock market would be thinking – can money be made when the price falls?
The answer is yes.
You can earn money by going short.
For example, you sell Reliance at 1500 in the morning. The price falls to 1475. You buy the stock and close the position. Your profit is 25.
However, going short has restrictions.
In the cash segment, when you sell a stock, you need to close your position on the same day. It you are in loss and want to carry forward your position to the next day, you cannot do that.
In other words, you can only do intraday trading. You can’t hold your position overnight.
In the derivative segment (future and options), you can go short and hold your positions overnight or for longer. This will be explained in detail in another article.
Let’s sum it up in short.
When you expect the price of a stock to rise and take a position, it’s called ‘long’.
When you expect the price of a stock to fall and take a position, it’s called ‘short’.
If you have any questions, post them in the comments section below.