For novice traders, it is very important to clearly understand the essence of the most basic operations when trading on the Forex market, namely long and short positions (or Buy & Sell), since all further work on Forex is based on them. So, let's start by defining a long and a short position.

The easiest way to make money on Forex is to buy a currency and wait for it to rise in price in order to sell it safely. However, it is not perfect, there is another way to make a profit - this is earnings on the increase or decrease in the price of the currency that is in stock.

Short position (or Sell operation), its essence and features in Forex

Deal on foreign exchange market Forex, which involves generating income from a fall in the exchange rate, has received such a name as. Quite often, you can make money on Forex with the help of such a deal. These transactions owe their name to the fact that often the exchange rate falls much faster than it rises. In other words, the price of a certain currency is sure to fall over a certain, usually short period of time. Also, such deals are called down deals.

At the time when a market participant (trader) sells the underlying trading currency pair, it is considered that he took a short position. For example, you can open a short position on the euro by selling EUR/USD. At the same time, an open long position on the dollar, because dollars are bought in this case. To denote those positions that are open for a short time, it is customary to use the term "short position".

Long position (or Buy operation), its essence and features in Forex

- This is a deal to increase, which is used several times more often than a short position in Forex. However, you can work on the market using short deals. As soon as sideways and sluggish trends continue on the market, according to the advice of professionals, in this case, a long Forex position will be inappropriate. The best solution would be a short position, and in no way should you take time to close.

As a rule, short positions do not bring super profits., and they don’t bring even more or less big ones, so you shouldn’t tempt fate, but immediately buy (enter a long position) after a fall by several points, without waiting for a significant decrease.

As it has already become clear, when a trader acquires (or buys) a currency pair when opening a position, this means that he has taken a long position. This usually means purchasing financial assets, which include securities and currency. At the same time, a corresponding sale is made. However a long position does not always imply the acquisition of any assets, it is also performed when the trader closes the previously opened short position.

It should be noted right away that short positions bring profit to large players (layout makers), which cannot be said about traders with little capital, who find it extremely difficult to make money on short positions.

The vocabulary of a trader working in any exchange market is extensive and varied. One of the most commonly used terms is short. Its synonym is a short position. In addition, traders use the derivative verb short in speech.

Let's give a definition and analyze in detail the meaning of these concepts. Remember, there is nothing complicated in the above terms.

Short (short for English short selling) is the sale by a market participant of shares or other investment instrument that he does not own, but borrows from a brokerage company for a while, in anticipation of a decrease in stock quotes.

Synonyms: short position, short position.

Acts as an antonym (has the opposite meaning) of the term long.

But what is the point of selling shares borrowed from a broker? This is a topical issue. Moreover, for such a loan, you have to pay a set commission to the brokerage company. The exception is intraday trading, when a short position is opened and closed within the same day trading session.

When analyzing the exchange situation, the investor may come to the conclusion that the value of the shares in question will decrease in the future. But what gives this knowledge? How to make money on such a forecast?

For such a situation, shorts were invented. A trader borrows shares of interest from a broker and sells them at current prices. Such a transaction is described by the verb short. Then the quotes fall. The trader purchases the required number of shares at a lower price and returns them to the brokerage company. The difference between the initial sale and subsequent purchase is the profit earned.

In other words, shorts give market participants the opportunity to profit from a falling market.

Let's look at an example to finally understand the concept under consideration. Let's analyze the behavior of PJSC "Magnit" shares on September 13, 2018.

A conditional trader, analyzing the chart of the indicated instrument, came to the conclusion that the quotes are close to reaching the local top and will soon begin to decline. A decision is made to open a short position. The trader shorts 10 shares of PJSC "Magnit" at a price of 4160 rubles.

After several hours of trading, he comes to the conclusion that the size of the correction is sufficient. A decision is made to close the short. To do this, the trader buys 10 shares of PJSC "Magnit" at a price of 4058 rubles. The securities are returned to the broker. The trader calculates the profit received.

It is: (4160 - 4058) * 10 = 1020 rubles.

We have described the perfect short. When the trader has caught both the top and the bottom. That is, he sold shares at the highest local price, and bought them back at the lowest.

Risks and restrictions

Exchange trading is inseparable from risks. Opening shorts can also be unprofitable. There is always a chance that the value of the selected shares will go up instead of down. In such a situation, an open trading position will not result in profit, but in losses.

It is good if the trader has set a stop loss. This is the price at which shares are automatically sold, limiting financial losses.

However, there are stock market participants who do not use stop losses. They short stocks and believe that even if the price does not immediately go down, they will have the patience to wait for an acceptable level of quotes. In such a situation, an open short position becomes a long-term one. And this has 2 problems.

Firstly, when transferring a short position to the next trading session, the trader pays the broker a fixed percentage of the cost, since the stock is borrowed. Yes, the amount of such a commission is small. However, the final payout depends on the short holding time.

Secondly, having shown some price on the chart, stock quotes may not return to it for months and years. In such a situation, shorting will undoubtedly become a problem. Consider the example with the shares of PJSC Novatek.

A conditional trader, analyzing the chart of the indicated instrument, concluded that the quotes will soon begin to decline. He shorted the shares of Novatek PJSC at a price of 640 rubles. However, instead of the expected fall, growth continued. Moreover, the increase in quotations has acquired a global character. As of September 2018, Novatek's shares are traded in the region of 1,000–1,100 rubles.

If such a short position was not closed in a timely manner, then today it turns into huge losses. Thus, shorting should be done with extreme caution.

Now let's move on to restrictions. Not all stocks are available from brokers for shorting. Moreover, you can open short positions only on fairly liquid instruments, which include blue chips, first-tier stocks and some second-tier securities. For example, if a trader wants to short the shares of PJSC Ashinsky Metzavod, which belong to the 4th tier, then this will not work.

An additional complication is that brokers do not have a list of stocks that are available for short positions. To determine the possibility of a short is obtained only empirically using a trading terminal.

How to correctly determine the entry point?

The choice of the moment for a short directly depends on the trading strategy used by the trader. An example of such a system is the opening of a short position when the price breaks down the walls of the ascending channel.

Remember, it is unacceptable to short an investment instrument just because the current quote level seems excessively high to you.

In addition, you should not blindly trust the signals of technical analysis indicators. For example, an overbought RSI or a bearish MACD divergence does not guarantee an immediate price reversal. These signals only speak of the increased likelihood of such a development of events.

Good clues for a trader are models and patterns of graphical and candlestick analysis. So, you should look for the following formations on the chart: head and shoulders, double top, hangman and shooting star. However, they are not a guarantee either.

If you do not yet have a completed trading system, then you can use the following scheme to open shorts. Wait for the formation of the one-time appearance of the signals described above on the chart of the investment asset: RSI overbought, MACD bearish divergence and one of the reversal patterns. In such a situation, you can safely short the asset in question. Naturally, not forgetting about setting a stop loss.

Unfortunately, such situations on the market are extremely rare. However, we can try to simplify the proposed system by eliminating RSI overbought. Thus, shorts can be opened in the presence of a reversal candle or pattern and a bearish MACD divergence. For an example, see the section of the Novatek share trading chart below.

How long to hold a short position?

There are two main approaches to answer this question.

The first part of traders are trying to sit short the entire distance of the downtrend. With this approach, the main thing is to remain calm and not close the position in case of random market fluctuations. Proponents of this method exit a short position only after unambiguous signals have been received, indicating a trend reversal.

The second part of traders say that technical analysis does not allow to accurately determine the moment of the beginning and end of a downtrend. These market participants recommend closing the short at the moment when the bearish indicators and graphical signals, on which the short position was opened, are replaced by the reverse - bullish ones.

What tools are suitable for shorts?

Exists general rule, which is followed by most speculators on stock markets. It states that the most liquid instruments are best suited for opening short positions.

For example, if we consider the stock market, then we should talk about blue chips and securities belonging to the first echelon.

The undoubted leader of the Russian stock exchange in this respect are the ordinary shares of Sberbank PJSC. In some trading sessions, the turnover on these securities is comparable to the sum of all transactions on other domestic chips.

Brief summary

Without opening short positions, it is impossible to fully trade on the stock exchange. Otherwise, the trader deprives himself of the opportunity to earn on the fall of the market.

It is best to open shorts on the most liquid investment instruments. This approach allows you to somewhat reduce the risks.

If you are shorting, always use stop-losses, which will help limit the size of losses in case of a negative scenario.

A short position is a sale of a trading instrument with the intention of buying it back after a price decrease.

Traders and investors working on the expectation of a price drop are called bears. A bear market is a situation where the price of a financial instrument is constant for a certain period of time. At this point in time, short positions dominate the market, and LOW prices are constantly updated. Open long positions and bulls incur losses in a falling market.

A short position has one peculiarity. To open a short, a trader needs to sell what he does not have: stocks, futures, currencies.

When opening a short position, the broker provides the necessary financial instrument in loans for sale on the stock exchange. For loans of securities or other assets, most brokers charge interest. Size interest rate on the market from 9 to 15% per annum with different brokers. If a short position was open for one trading session, then the interest rate will be divided by 365. It turns out a rather small amount in percentage terms that the trader must pay to the broker, however, for long-term investments, a short position, other things being equal, will bring less profitability.

For a long position (long), an increase in the asset by 20% will bring the investor a return of 20%. If the asset fell by 20%, and the trader has a short position during the year, then his profit will be about 10%, since another 10% will need to be paid to the broker. Therefore, most of the big investment funds and investors mostly hold long assets in their portfolio (long positions).

You can open a short position with sell market orders (sell at the current price) or sell limit orders (to get the required price). To close a short position after making a profit, a trader needs to place a limit order in the order book or buy the asset at the market price. For this, buy limit or buy market orders are used. The borrowed asset is returned to the broker automatically and imperceptibly to the trader.

Beginners are not recommended to start short trading on financial markets. There are certain risks associated with this. First, the trader always bears additional expenses to pay interest for the use of the sold asset. Secondly, at certain points, the exchange (or broker) may impose temporary restrictions on the sale of a particular asset. The reasons are different: the price of a share or index fell too quickly, and a so-called “bar” appears when trading is temporarily suspended. Or in the market, the vast majority of bears who play for a fall in this financial instrument, there is practically no demand from bulls, and so that the price does not fall vertically down, the exchange can also impose temporary restrictions on selling and opening short positions.

It should be noted the specifics of most assets - the fall often occurs faster and by a greater number of percent than the growth. History knows many events when stock indices fell by 10-15% and very few cases when indices could grow even by 5-7% during a trading session.

There are a lot of stories and legends in trading associated with short positions. Many well-known investors have earned their millions of dollars from the sale of financial instruments. Films have been made, for example, "The Shorting Game", books have been written, one of them is "Memoirs of a stock speculator", in which a lot of attention is also paid to short trading.

Advantages of a short position

While there are disadvantages, short positions also have their advantages. Due to the fact that large funds have a huge number of open long positions and periodically, they unload their portfolios, that is, they sell stocks and futures to the market, sometimes there is a good opportunity to trade against large players in certain time intervals. For example, bad news has come out (crisis, war, bad company report) and the price of a stock or commodity starts to move down rapidly. Funds do not have the ability to quickly close their positions. They have high volume, they need time and sufficient demand for falling assets. This time period is often used by traders who open short positions. But you should be careful, because always after a big fall, the price of an asset may seem quite low and attractive to other investors, who can start opening long positions and thereby push the price up again.

We understand what a long position and a short position on the exchange (long and short) are, and also find out how to open such transactions.

Almost every single branch of human activity sooner or later acquires its own jargon. Has its own dictionary stock trading. A novice investor cannot do without understanding the sometimes specific expressions of traders and brokers.

One of the key terms of financial transactions on the stock exchange is the concept of "long position" - "short position". Or, in other words, long and short

The standard sales formula "bought low - sold high" is familiar to everyone. However, the stock exchange sometimes implements a scheme that is incomprehensible to the average person and at first glance a paradoxical scheme, when an investor “first sells high, and then buys low.” How this is possible, we will understand a little later.

What is a long position

A long position (or long, from English long) characterizes the traditional situation in which an investor buys an asset with the expectation that its value will increase. After that, he expects to sell it and make a profit.

Going long is buying securities that are expected to rise in price.

What is a short position

A short position (or short, from the English short) means that the investor borrows depreciating securities from a broker and sells them in order to buy them again after a while, but at a reduced price and, accordingly, make a profit again.

The decision to open a short position is dictated by a situation in which the investor is confident in the upcoming fall in the value of the asset

In this case, he borrows the securities from the broker and sells them at the current price, and later, after the securities have really fallen in price, he buys them back at a reduced cost and fixes the profit.

Margin trading

For many novice investors, the moment associated with the opening of short positions remains incomprehensible. Namely, how you can sell what you do not have. Here the trader implements the scheme margin trading.

Margin trading implies such transactions in which assets are sold secured by a specified amount (margin)

With this scheme, the goods are sold with the aim of buying and returning a similar one after a while. This short selling is called a short position.

The scheme allows you to make a profit in a situation where prices are falling. If the securities lose value, the trader buys them back at a reduced price and returns them to the broker, keeping the profit.

Trading on the securities market is a risky process in general, and opening short positions is especially risky. The cost of securities, contrary to hopes and forecasts, may begin to grow. This means that the trader will have to invest his funds to buy back securities that need to be returned to the broker, who also risks in such a situation.

To insure yourself against serious losses, firstly, the broker draws up a list of assets for which the trader will have the right to open short positions. Usually these are rather liquid securities.

Second, the broker protects itself by setting discount rates. They limit the amount of own funds for opening a short position. Also, the coefficients give the broker the opportunity to forcibly close a position if it goes against the interests of the investor.

By the way, the principles of margin trading also work in the situation of opening long positions. In this case, a situation is implied when the broker provides the trader with additional money so that the latter can acquire more assets that are rising in price, which means increasing profits.

Risks are also inevitable here, but they are minimized by the fact that the broker also forms a list of stock securities for which it is advisable to open a long position. There are also restrictions on own funds trader, for which he plans to acquire assets.

In addition, the broker fixes in advance the minimum value of the asset, upon reaching which, in the event of a trend reversal in the negative direction, the long position will be closed automatically.

In the case of a positive trend, the asset gradually grows in price, the trader sells it at a certain moment and fixes the profit.

You need to understand that the opening of long positions can take place using the methods of margin trading, and exclusively with the investor's personal funds. Short positions are possible only with borrowed funds.

Origin of terminology

The long position was named so because of the fact that historically among stock exchange specialists there was an opinion about the predominant growth of the market for long periods of time. The short position was named so because traditionally the downtrend lasts much less time than the uptrend.

We urge our readers not to depend on prevailing opinions, but to analyze the specific, lively and current situation that has developed on the market right now.

Bulls and bears

It is impossible not to mention the jargon that is used to explain the concepts of short and long positions.

So, long positions receive from the participants of exchange trades the name bullish. There is an opinion that this term was born due to the fact that a real live bull can put something up on the horns and wear it like that for some time. And also the bull is characterized as stubborn, stable, able to stand his ground for a long time.

The opposite phenomenon - short positions - is commonly called bearish. This term is also explained by the peculiarities of animal behavior. Firstly, a downtrend is symbolically associated with how a bear bends down with its paws, makes something bow.

Another version of the origin of the term may be related to the expression "To share the skin of an unkilled bear." So an investor, realizing an asset that he borrowed from a broker, runs the risk of not guessing the trend and not getting the profit he was counting on.

Finally

Despite the fact that exchange trading is a risky business, you can certainly get big money from working on the market. A significant advantage is that you can trade on the exchange and make a profit, regardless of the current trend, opening a short position in the case of a negative scenario, and long in a positive scenario. Also, experienced investors can apply the principles of margin trading, using them to receive additional profit.

Every trader at least once in his life heard such English terms as long or short. What it is? We will try to disclose in this material.

It is important to know this for all traders who want to achieve certain success not only in Forex, but also in the stock exchange. After all, understanding what short and long are on the stock exchange, you can consider different Forex trading strategies and be aware of what is at stake, and not remain guessing.

What is short and long on the stock exchange?

On the stock exchange, as well as on the Forex market, traders can open Long (long) positions or Short (short). It is important to know what long and short positions are. Let's consider each concept separately.

Long positions (Long)

During the purchase of securities, the trader opens a Long position (long). That is, it is supposed to buy securities at one price, and after a while, when their price is higher, the assets will be sold. A Long position is opened with a BUY order, and closed with a SELL order.

Figure 1. Long positions (Long).

Short positions (Short)

A Short position is opened on the stock exchange when a trader borrows securities from a broker in order to sell them. A trader opens a short position only if he is sure that the price of securities will fall. Thus, a player borrows securities from a broker at one price and after a while closes a short position at a low price (buying back securities). The player's profit is the difference between the buying and selling prices.

Figure 2. Short positions (Short).

Short selling is triggered by a SELL SHORT order. The operation of closing a short position is called CLOSE SHORT.

Short and Long Forex

The concept of short and long is found not only on stock exchange. A Forex trader needs to understand the difference between going short and going long in Forex as this is the basic thing to know.

Short position in Forex (short)

So, a Forex short is a deal opened by a trader for a particular currency pair by order of Sell. Market participants open Short positions when they assume that the market will move in a bearish trendline or there should be a correction in an uptrend market. This name was taken from observations of the behavior of foreign exchange assets. Prices often take longer to move up than they do to move down.

World markets have suffered many crashes throughout history. The first collapse happened in the 17th century. Next was I World War and then the Great Depression. People could lose all their money in a day, as there was a lightning fall in the currency, that is, price drop in a short time. Here's where the name Short Forex comes from.

When does a short appear Short in Forex? A short position is opened by a trader when the trader decides to submit one or another currency pair. For example, let it be the sale of the GBP/USD pair. It is assumed that the player wants to sell the British pound for the dollar. At this very time, he opens a long position on the US dollar.

If we compare Forex and stock exchange, then a short position in the Forex market is no different from a long one. However, it is impossible to enter a short position on some assets on the exchange. Also stock indices constantly growing in a normal world economy. In parallel with them, there is an increase in such currencies as: the British pound, Swiss frank, euro. Generally speaking, EU area currencies rise more often than they fall. But lately, this trend has not been observed.

Short positions are mainly opened intraday, based on fundamental data or technical analysis.

Long position in Forex (long)

A long Forex position is when a trader opens a Forex order at a certain price, and when this price rises, he closes it, earning on it. That is, the player expects the growth of the chosen currency pair to make a profit.

You can open a long position in the Forex market using the Buy button or by placing pending orders Buy Stop or Buy Limit.

A Long position is closed by take profit or manually during a rollback, which can change the uptrend. You should always open long positions in an uptrend on higher timeframes (from H4 to W). Risks increase significantly if a trader opens long positions against the global trend.

We hope you understand what long and short are in trading and what they eat with.

Conclusion

So, we found out what a long and short position is. We also considered short and long positions in Forex using examples and studied situations when it is better to open Short and Long positions, and when it is not worth it.