Long and short positions. How to make money on the rise and fall of crypto
By Yuriy Bishko Updated November 21, 2022
When it comes to trading, some of the main images that come to mind are charts, technical analysis figures, trading candles and bars, and key terms like Long and Short. These terms actually indicate the possibility of earning on the rise and fall of the market. Yes, you heard it right, you can earn not only on the rise but also on the fall of the market.
- What are long and short positions in trading and investing?
- What does long and short position mean?
- How to do short or long bitcoin and altcoins?
In this article, we will answer all these questions, tell you how to make money on falling and rising prices and explain in simple words what is the Long and Short position.
What is a long and short position?
In order to better understand what a long and short is, it is better to give an example from real life. Have you participated in sports betting? The principle is the same, but if in the game you bet that a team loses or wins, then in this case you bet on the rise or fall of the market.
Schematically for the Long position, the list of actions will look something like this.
On the chart, it will look something like this.
In the case of Long positions, everything is simple. You buy stocks, bitcoin, altcoins, any asset in anticipation that the price will rise. The goal in this case is to make money on growth.
The short position, i.e. the rate at which prices fall, is a bit more complicated. But the principle itself is quite simple. Many newcomers are confused and do not understand how the price is falling, and we make money on it. The simplest way is to show it schematically.
As you can see, schematically, the main principle is that we borrow coins, then sell, if the price goes down, we buy coins at a lower price, return the number of coins we borrowed, and take the difference. At first glance, it may seem that it is difficult, but in fact everything is easier than it seems.
It will look like this on the chart.
Step 1. Take a loan on the exchange .
Step 2. We wait for the price to fall.
Step 3. After the price has dropped we buy 1 ETH coin again, but with a 50% discount. We return the debt to the exchange - 1 ETH coin. And we take the difference of $4170 - $2096 = $2074. In fact, this is the process of earning money on the fall of the market.
Keep in mind that the market is not always moving in your direction. You can both earn and lose. Let's look at an example. You borrowed 1 ETH coin. They sold it for $ 500 and expected the price to go down. But everything turned out differently, the price went in another direction and increased by 30%. As a result, you need to buy coins at a higher price and repay the debt. $500 - $650 = -$150 is exactly the amount you would lose in this example.
Additionally, I want to calm you down. You do not need to carry out the whole process, which we have presented in the diagram. The diagram only shows the principle of operation. Most exchanges have simplified and optimized this process, so the interface is quite clear.
All you need to do is choose the direction of movement Buy (Long) - Sell (Short), enter the required amount and confirm. Everything else the system will do for you.