When trading assets and securities, you have the option to take a long or a short position. Taking a long position means you are investing in a security with the expectation that the security will rise in value over time, allowing you to either increase the value of your portfolio or sell for a profit at a later date.
Going long is a common approach of most traders when investing in stocks or bonds, as well as some other asset types. The long position can apply to both short- and long-term trading. The common denominator is that you expect the asset to rise in value.
Long position trading example
Example: In order to better understand long market trading positions, let’s break down a real-world example of long trading in action. Let’s say a trader purchases a single Amazon share at $3,201. When opening this position on AMZN, the trader might be hoping that Amazon’s next quarterly sales figures are going to show a rise in profits, which would likely push up the share price.
The trader could even set a take-profit order on the position, which would prompt their broker to automatically sell the share once it reaches a certain price. The mere fact that the trader is taking a bullish position on Amazon and holding out for a price increase is in itself a long position.
Difference between long and short positions
Now, let’s break down the difference between long and short positions. You have probably already heard of the term “short selling.”. Essentially, it is the act of betting against a particular asset. It is trading at the sell price, whereas a long position would be opening a trade at the buy (offer) price.
When you take a short position, you are hoping that the security in question will decrease in value over a given time period and that you will be able to profit from that decrease.
Benefits of long market positions
There are several benefits of taking long market positions, provided that you are doing so with the right kinds of asset classes. As mentioned earlier, long positions are particularly popular with stocks and bonds, as well as options contracts. Chiefly, going long is always lower risk than other strategies. It is also a lower reward approach, but it is the safest approach for the bulk of your portfolio. In addition, the stock market invariably tends to go up over the long term, meaning that a long market position is almost guaranteed to pay off over time.
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