Investors and traders often talk about “being long” or “going long” a stock, or they may say they’re “short” a stock or other investment. The lingo may be opaque, but the difference between these two terms couldn’t be more different, and it’s useful to know the distinction.
Want to know the difference between the two? Here’s the long and the short of it!
Going long vs. going short
The distinction between going long and going short is brief but important:
- Being long a stock means that you own it and will profit if the stock rises.
- Being short a stock means that you have a negative position in the stock and will profit if the stock falls.
Being long a stock is straightforward: You purchase shares in the company and you’re long. Sometimes people refer to shareholders in a company as “longs.” But the important point to remember is that if you’re long, you own the investment in question.
Being short a stock is less straightforward, but it refers to those investors who short sell a stock in order to profit on its decline. Investors refer to those with such a position as “shorts.” The key thing to remember here is that when you’re short something, you have a negative position in it. The next section explains more about short selling and how it works.
This distinction can become a bit more confusing when you go long put options, which profit when a stock declines.
How short selling works
Going short, or short selling, is a way to profit when a stock declines in price. While going long involves buying a stock and then selling later, going short reverses this order of events. A short seller borrows stock from a broker and sells that into the market. Later the investor expects to repurchase the stock at a lower price, pocketing the difference between the sell and buy prices.
That is, while longs try to buy low and sell high, shorts try to sell high and buy low.
To short a stock, you’ll need a margin account, which allows you to borrow money based on the equity you have in the account. And because you’re borrowing, you’ll have to pay interest on the loan. In addition, you’ll have to pay a (usually) small fee of a few percent annually to the broker that is called “the cost of borrow.” This fee pays for the broker to find and arrange the loanable stock. Finally, if you go short, you’ll owe any dividends that are paid by the company.
Because of all these difficulties in going short, short selling is usually best left to the pros.
Investors who are looking for an easier way to go short often turn to options, and options offer a way to short stock without the same risks and with magnified returns if the stock goes your way.
The pros and cons of going long and short
While they may sound like opposite strategies, taking a long or short position in a stock has some asymmetric payoffs and risks.
Pros and cons of going long
- Gives you an ownership stake in a business
- Can increase in value if the stock rises, but can lose money if the stock falls in price
- Losses are limited to whatever you invest in the stock
- Must have the money to buy the long position, but can borrow on margin to buy it
- No ongoing fees to own a stock
- Can receive cash dividends from a long position
Pros and cons of going short
- Doesn’t give you an ownership stake in the business
- Gives you a way to profit when a stock or market declines in value
- Losses are theoretically unlimited since a stock can keep rising
- Must have a margin account to go short
- Ongoing fees include margin interest expense and a stock’s cost of borrow
- Must pay any cash dividends paid by the short stock
Bottom line
Once you know the jargon, it’s easy to understand what a long and short position are. And it’s a useful way for investors to quickly and succinctly say how they’re positioned in a given stock. Be sure to understand the potential risks of going long and short before you make any moves.
FAQs
Key Takeaways. With stocks, a long position means an investor has bought and owns shares of stock. An investor with a short position has sold shares but does not possess them yet.
What is the difference between a short position and a long position in trading? ›
The Bottom Line
Open positions can be long or short. Long positions involve owning a security before being sold; they profit when there is an increase in price. Short positions involve borrowing a security before being sold, to be bought back at a lower price: they profit when the security falls in price.
What is the difference between a long put position and a short put position? ›
A long put is a bearish strategy, while a short put is a bullish strategy. With a long put, the investor buys a put option, giving them the right to sell the stock at a specific price. With a short put, the investor sells a put option, giving them the obligation to buy the stock at a specific price.
How do you know if a position is long or short? ›
Having a “long” position in a security means that you own the security. Investors maintain “long” security positions in the expectation that the stock will rise in value in the future. The opposite of a “long” position is a “short” position. A "short" position is generally the sale of a stock you do not own.
Why are short positions riskier than long positions? ›
In a long position, the risk is limited to the amount of money invested, while in a short position, the potential losses are unlimited since there is no ceiling to how high the asset price can rise. As a result, short positions are generally considered riskier than long positions.
Is a long position buy or sell? ›
What Is an Example of a Long Position? Going long generally means buying shares in a company with the expectation that they will rise in value and can be sold for a profit (buy low, sell high). With options, a long position constitutes being the buyer in a trade.
What is an example of a short position? ›
In theory, that means there's no upper limit to the amount you'd have to pay to replace the borrowed shares. For example, you enter a short position on 100 shares of stock XYZ at $80, but instead of falling, the stock rises to $100. You'll have to spend $10,000 to pay back your borrowed shares—at a loss of $2,000.
How do you make money on a long put? ›
Summary. This strategy consists of buying puts as a means to profit if the stock price moves lower. It is a candidate for bearish investors who want to participate in an anticipated downturn, but without the risk and inconveniences of selling the stock short. The time horizon is limited to the life of the option.
Is a long put bullish or bearish? ›
A long put is a position when somebody buys a put option. It is in and of itself, however, a bearish position in the market. Investors go long put options if they think a security's price will fall. Investors may go long put options to speculate on price drops or to hedge a portfolio against downside losses.
Is selling a call bullish or bearish? ›
Selling a call option is a bearish position. Ideally, traders who sell calls want the underlying's price to drop and for the option to expire OTM. Short call positions can also be bought to possibly lock in a certain profit or loss before expiration.
When do I go long or go short? You will go long when you believe that the market price will rise and go short if you think it will fall. Typically, the research that instructs your trading plan will determine whether you should go long or short when getting exposure to an underlying asset.
Can I hold a long and short position at the same time in Binance? ›
In Hedge mode, you can simultaneously hold long and short positions for a single contract.
How to tell if a stock is being shorted? ›
Search for the stock, click on the Statistics tab, and scroll down to Share Statistics, where you'll find the key information about shorting, including the number of short shares for the company as well as the short ratio.
What are the disadvantages of short position? ›
Shorting stocks is a way to profit from falling stock prices. A fundamental problem with short selling is the potential for unlimited losses. Shorting is typically done using margin and these margin loans come with interest charges, which you have pay for as long as the position is in place.
Why shorting is better than going long? ›
Going long vs.
The distinction between going long and going short is brief but important: Being long a stock means that you own it and will profit if the stock rises. Being short a stock means that you have a negative position in the stock and will profit if the stock falls.
Is shorting stocks illegal? ›
Though short selling has been legal for the past century, some short-selling practices have remained legally questionable. For example, in a naked short sale, the seller doesn't first track down the shares that are then borrowed and sold.
What is a long position in options? ›
A long—or a long position—refers to the purchase of an asset with the expectation it will increase in value—a bullish attitude. A long position in options contracts indicates the holder owns the underlying asset. A long position is the opposite of a short position.
Is taking a short position always the same as selling short? ›
A short position and a short sale are very similar concepts; for this reason, they are often collectively referred to as "shorting," and the two terms are quite commonly used interchangeably. The difference between the two lies in the subject of the transaction.
Can you have long and short positions at the same time? ›
You can't open long and short positions on the same market at exactly the same time with a single click. You can however open two separate trades in the same market in the opposite direction.
