What's the difference between Long and Short Positions?
With CFDs and FX trading you can take a view that a market will go up (buying) or go down (selling). When you buy, it is known as ‘going Long’. When you sell, it is called ‘going Short’, as in that you are short of shares. These terms derive from traditional stock market trading and when trading CFD’s, the same terms apply.
Buy (entering a long position)
- This is when you buy something at a price with an intention to sell it at a higher price. This is typically how traditional stock market trading works.
Sell (entering a Short position)
- This is when you sell something at the market price with the intention to buy it back at a lower price. This means you can make a profit even when markets are going down.
Let’s look at an example
If you think that shares in Apple will go up in price, you would buy shares in the company. This is known as a ‘buy’ or ‘Long position’. If the share price goes up, you can then sell them and make a profit.
On the other hand, if you think the share price will go down, you can ‘sell’ or enter a ‘Short position’ (even you do not own any shares in the company). If the price does go down, then you can close the position at a lower price and make a profit.
This flexibility gives you the power to profit no matter whether the markets are going up or down. It also gives you the ability to manage your risks. To find out more about risk management, read this article.