Since stock markets are risky and risky for investors, they are markets where both gains and losses can be quite high. Stock markets, which are the marketplaces where company shares are bought and sold, entered a new era with the emergence of cryptocurrencies and crypto money exchanges appeared before us. As cryptocurrency exchanges become more interesting than the traditional stock market, the concepts of long positions and short positions have become more interesting than ever.
In short, even though it sounds like a kind of reduplication as long short, in fact, these two positions are literally opposites of each other. It is possible to say that these positions, which are created by investors with different goals and to meet different expectations, are an effective investor tactic with the most basic definition. Let’s examine in all details the questions such as what are long positions and short positions, what are their advantages and disadvantages.
- What we tell is for informational purposes only, none of it is investment advice.
What is the long position applied by those who aim for the future?
A long position, as the name suggests, is a position that an investor holds for a long time by adding a financial asset that he thinks will increase in value in the future, to his investment portfolio. The reason why this position is called long is that the investor will both hold the asset for a long time and will catch the real profit in the long run.
In fact, the long position does not force the investor into anything. It is possible to close the position by selling the asset you bought in the long position, which is also defined as buying the asset. Of course, when you dispose of an asset that you think will bring profit in the long run, the profit and loss results may not be as you planned.
What are the advantages and disadvantages of a long position?
- Long position advantages;
- You can reduce the risk you take in short positions with long positions.
- Profit guarantee is high as all kinds of stock markets tend to rise in the long run.
- Long position disadvantages:
- If things don’t go as you planned, let alone making a profit, you may lose.
- The negative effects of instant events on short-term prices can also negatively affect your long position.
What is the short position applied by those who want to take quick action in a short time?
A short position, called a short sale, is a position in which an investor sells an asset for later repurchase. If you think that an asset in your portfolio will decrease in value but will revalue or appreciate more later, you open a short position, sell the asset and then buy it again.
It can be said that buying a long position is borrowing a short position. For example, you have an asset of 1000 dollars and as a result of your analysis, you predicted that this asset will lose value in the future. You sold it immediately and began to wait. Your analysis was correct and the asset fell to $800. You immediately took that asset again. What happened? You made $200 profit by doing nothing.
What are the advantages and disadvantages of a short position?
- Short position advantages;
- If things go as planned, you can make high profits in a short time.
- Short position disadvantages:
- It is much more risky than a long position.
- When you want to buy back, the price can be much higher than when you sell it.
- The profit you plan to make depends on the selling price.
In short, the differences between long positions and short positions:
- A long position is opened for assets that are expected to increase in value, and a short position is opened for assets that are expected to decrease in value.
- In a long position, the investor owns the asset, while in a short position, the asset is sold to be bought back later.
- The investor officially has the right to buy and sell the asset in a long position, but is considered a debtor in a short position.
- The short position is much more risky than the long position.
It is recommended to use long and short positions together:
The main aim of the investors is to try to make maximum profit with a limited capital. For this reason, investing all the capital in a single position is never considered reasonable as it carries a great risk. What needs to be done during investment is to provide portfolio diversity and to follow strategies to prevent possible losses.
Among these strategies, the most applied one is to use the long position and the short position together. Although a long position has much lower risk, it can bring profit in the long run. A short position, on the other hand, can bring profit in the short term, although it has a much higher risk. If you follow an investment strategy in which these two positions are used together, your chances of making higher profits will increase and you will have the chance to prevent possible losses.
Whatever position you take, remember that there are risks:
Especially recently, with the rapid popularity of crypto money exchanges, we have started to hear countless news. X coin left 300% profit or bankrupt Y coin investors. It is very normal because, according to the common opinion of all economic experts, it is not possible to talk about an asset that will definitely make a profit or make a loss for the investors.
Both traditional exchanges and cryptocurrency exchanges have extremely delicate balances. The stock markets have always been the fastest affected by the economic and political structure. In other words, the investor can make a big loss from an investment that he aims to make a profit in a long position, due to a political crisis or a slight economic turmoil. In the short position, this risk is much higher.
So what to do? First of all, do not listen to the manipulations. Don’t sell the property or borrow money and buy that asset just because you’ve heard that asset X will be overvalued. Of course, if you have a certain amount of capital, you have the right to invest and try to evaluate it, but keep in mind the scenarios where crypto money exchanges are upside down because Elon Musk made a share.
We talked about the details you need to know about the subject by answering the questions such as what are long positions and short positions, what are their advantages and disadvantages, which we encounter in traditional exchanges and crypto money exchanges. Let’s remind again; What we tell is for informational purposes only, none of it is investment advice. You can share your thoughts on the subject in the comments.
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