Long Position & Short Position in Stock Market: What Are They?

Long and short in stock market terms refers to whether a trade is initiated by selling first or buying first. To put it in other words, long and short can also be explained whether an investor owns stocks or needs to own them. Let us understand long position v/s short position and how they work in the stock market:

If the market has a bullish trend (an upward trend in an industry’s stock prices) the trader is likely to hold a long position. This means that the investor has bought the shares or stocks and is waiting for the price to go up so that he/she can sell the stock; this is generally how most trades work. This means a long trade is initiated with an expectation that the price will go up in the future, and the trader will be able to sell the asset and realize a profit.

Going short or shorting may sound confusing as we need to own something before we sell it in the real world, but this is not the case in the stock market. Here the trader borrows stocks from his/her broker at the current price. Short positions are reverse of long positions; the trader will rely on market fluctuations to book a profit.A short position is held by the trader when he/she sells an asset with the hope that the price will go down. Thus a short trade is initiated by selling an asset, before buying it. This is done with the intent to repurchase the asset at a lower price and book a profit. This option is used when the market has a bearish trend (a downward trend in the industry’s stock prices).

Day traders may go long or short depending on their choice and how they expect the market to move; whether they expect a bearish or bullish trend.Trading in the stocks always comes with inherent risks, whether one goes long or short. If one holds a long position, they can hold the position for as long as they want and wait for the market positions to improve to make a sale. However, in case of a short trade, this option of waiting is not available; the trader needs to buy the shares even if they are a higher price to square off the trade.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.