What is 'Long' and 'Short'?

By Research Desk
about 3 years ago

Long, also known as Long Position in financial market parlance, is the purchase of a share / commodity / bullion / other traded financial asset, with the expectation of a rise in price of the asset. In case of futures, it is purchase of the futures contract of the asset while in case of options, it is buying the option (call or put).

 

E.g. Going long on Stock A at 2,450 means that the investor has purchased shares of Company A at Rs. 2,450 per share and has a ‘long position’ in it. The investor hopes that the price of the stock will rise over 2,450.

 

The opposite of ‘Long’ is ‘short’.

Short, or Short Position, is the sale of a share / commodity / bullion / other traded financial asset, with the expectation of a fall in price of the asset in the future. In case of futures, it is the sale of the futures contract of the asset while in case of options, it is selling or writing a call or put option.

 

E.g. Going Short on Stock B at 1,180 means that the investor has sold the shares of Company B at Rs. 1,180 per share and has a ‘short position’ in it. The investor hopes that the price of the stock will fall below 1,180.

 

To sell the shares, investor must either be holding it or would have borrowed it from a broker. If he neither holds / borrows security, it leads to short selling (selling without owning the stock), in which case the investor must purchase the shares from the open market or a broker. Thus, a loss or profit occurs, if the price of security rises or falls respectively, after short selling.

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