Long positions and short positions: Two essential strategies every trader must understand

SmartContractPlumber · 2026-01-04T17:02:48+00:00

Long and short are two basic trading strategies: going long bets on price increases, buying low and selling high for profit; going short involves borrowing assets to sell, expecting the price to fall so it can be bought back for profit. The risk for long positions is limited to the principal, while the risk for short positions is unlimited and can result in significant losses. Choosing a strategy is essentially choosing a level of risk.

SmartContractPlumber

2026-01-04 17:02:48

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Buy when bullish, sell short when bearish — The fundamental difference between bulls and bears

The logic of trading is actually very simple, consisting of two opposing bets. One is believing that the price will rise, and the other is betting that the price will fall.

Long Position: Betting on Price Going Up

A long position is the most straightforward approach. You directly purchase the asset, expecting it to appreciate. For example, you buy 1 Bitcoin for $20,000, expecting it to rise to $25,000. When the target is reached, you sell for a profit of $5,000 (minus fees). This is the logic of going long — buy low, sell high.

Short Position: Borrowing from a Broker to Short

A short position is the opposite. You borrow an asset (such as stocks) from a broker, immediately sell it on the market, and then buy it back later at a lower price to return it. For example, you borrow 10 shares of a company’s stock (at $100 per share), sell them for $1,000. When the stock price drops to $80, you only need $800 to buy back these 10 shares and return them to the broker, netting a profit of $200 (minus fees).

Risk Comparison: Recognizing the Dangerous Boundaries of Each Position

🔵 The risk of a long position is capped: your maximum loss is equal to your invested principal. If the asset goes to zero, the loss is 100%. This is a “bounded” risk.

🔵 The risk of a short position is unlimited: the asset price can rise infinitely. If a short position encounters a sudden surge, the loss can far exceed your initial investment, potentially reaching 200%, 300%, or more.

Choosing to go long or short essentially involves selecting different levels of risk.

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