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Long Position - Long

 

What Is Long Position?

A long position, sometimes referred to colloquially as ‘going long,’ occurs when an investor buys an asset holds on to it for a period of time and sells it later.

In contrast, a short position, also known as ‘shorting,’ occurs when an investor sells an asset and buys it back later.

Both investors have the expectation of making a profit, but going long is a bet that the price of the asset will rise, while shorting is a bet the price will fall. The risks of each position are quite different.

Risks of Going Long vs. Short

When he sells the stock he has exited the long position and his XYZ position is now called “flat.” The risk of a long position is limited by the price of the asset purchased.

When he sells the stock he has exited the long position and his XYZ position is now called “flat.” The risk of a long position is limited by the price of the asset purchased.

In the example above, the risk of the long position is $100 because only one share was purchased. Since the price cannot go below zero, the investor can only lose $100.

A short position, on the other hand, has unlimited risk because if the investor sells the stock at $100--before actually buying/owning it--and the price rises, they will be forced to buy it at a much higher price in order to deliver it to their buyer.

For example, if stock XYZ climbs to $500 by the time they must deliver, they will lose $400. Theoretically, the price of stock XYZ could go up forever, making the risk unlimited.

Going Long via Short ETFs, Derivatives, Put Options

Although a long position generally means the investor expects an asset to appreciate in value, Short ETFs and derivatives, like put options, depend upon the underlying value of security falling for the long position to become profitable.

Imagine an investor buys a put option with a strike price of $100 on bond ABC that is currently trading at a price of $100. The investor has paid for the option, not the obligation, to sell the bond at a price of $100.

In other words, the investor is long the put option--which requires prices of bond ABC to fall below $100 to become profitable. If the price falls to $90 at the time the option expires, the investor can purchase bond ABC on the open market for $90, then immediately sell it to the person who sold him the put option at the agreed upon contract price of $100, resulting in a profit of $10.

Furthermore, imagine a bearish ETF that is designed to appreciate when stock index MNO falls and depreciate when stock index MNO rises. If an investor buys one share of this ETF at $100, expecting the price of the ETF to rise to $110, he is long the ETF with the expectation that stock index MNO will fall.

Where To Find Long and Short Strategies on Investing.com

Buying and selling strategies are discussed in the Analysis and Opinion pages of Investing.com. Although analysts do not specifically recommend taking long positions, the long side of the market is considered. When analysts expect an asset will appreciate, long strategies are favored.

Investing.com also maintains a social trading community that tracks live and demo accounts, including a leaderboard, and other detailed tables of trading activity. Using these accounts affords investors the opportunity to explore long positions without making the commitment of personal capital.

Investing.com also maintains a social trading community that tracks live and demo accounts, including a leaderboard, and other detailed tables of trading activity. Using these accounts affords investors the opportunity to explore long positions without making the commitment of personal capital.

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