There are countless strategies in stock trading. However, despite their obvious differences, they all rely on two basic principles: long and short positions. This is one of the first questions beginners tend to ask. . So today, we'll explain long and short trading in simple terms.

Long

Long trading is the most obvious process in trading, so let's start with it.

The term comes from “Long Position,” meaning a “lengthy” or “extended” position. The concept is simple: traders use this method when an asset is expected to rise in value. They aim to buy shares at a low price and sell them once the price increases.

Accordingly, the purchase itself is considered the opening of a long position. While the purchased shares are in the trader's portfolio, they are considered to be held, and when they are sold, the position is closed. . Profit is calculated as the difference between the selling and buying prices, though it’s more accurate to also factor in additional costs—like broker commissions.

The name also characterizes another important feature: a long position can be held for as long as desired. Any company strives to expand and increase its profits, which means that its shares may rise in value in the future. Investors who prefer long trading because they hope for rising

Short

In contrast to long, short is a short position or a bet on a decline. Supporters of short positions are called “bears” as a market that is going down is called a bear market.

Short positions are used when traders want to profit from a decline in the value of an asset.

The key point when trading short is that the investor is not trading their own shares, but assets borrowed from a broker for their own funds. They sell them at the current price, then wait for the price to fall as much as possible, buy back the same amount of shares and return them to the broker, keeping the difference in price for themselves. The return of the borrowed assets closes the short position. Many beginners believe that by selling assets from their portfolio, they are also trading short, but this is not the case — such a sale is a normal closing of a long position. In addition, when trading short, the trader pays an additional commission to the broker for the borrowed funds on a daily basis.

The activities of "bears" are often restricted by brokers.. For example, they may only allow short positions on highly liquid stocks and set limits on how many shares can be borrowed—usually based on the amount in the trader’s account. This leads to another term: Margin Call—when a sudden price change threatens the investor’s ability to maintain the position, the broker may forcibly close the position.

Why are short and long positions equally important?

It may seem that short trading carries high risks, but in practice, it has many followers. Moreover, it serves as a counterbalance to long trading, helping stabilize the market.

If “bulls” dominate, the market rises; if “bears” dominate, it falls.

Thus, both long and short are essential elements of stock trading. Shorting is often more complex, which is why there are typically fewer “bears” than “bulls” in the market.