Long trades vs

     
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Long & Short Positions

In the trading of assets, an investorEquity TraderAn equity trader is someone who participates in the buying & selling of company shares on the equity market. Similar lớn someone who would invest in the debt capital markets, an equity trader invests in the equity capital markets và exchanges their money for company stocks instead of bonds. Bank careers are high-paying can take two types of positions: long và short. An investor can either buy an asphối (going long) or sell it (going short). Long & short positions are further complicated by the two types of optionsStock OptionA stoông chồng option is a contract between two parties which gives the buyer the right khổng lồ buy or sell underlying stocks at a predetermined price and within a specified time period. A seller of the stock option is called an option writer, where the seller is paid a premium from the contract purchased by the stoông chồng option buyer.: the điện thoại tư vấn và put. An investor may enter inlớn a long put, a long gọi, a short put, or a short call. Furthermore, an investor can combine long & short positions into lớn complex trading and hedging strategies.

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Long Positions

In a long (buy) position, the investor is hoping for the price khổng lồ rise. An investor in a long position will profit from a rise in price. The typical stoông chồng purchaseStochồng AcquisitionIn a stock acquisition, the individual shareholder(s) sell their interest in the company khổng lồ a buyer. With a stock sale, the buyer is assuming ownership of both assets và liabilities – including potential liabilities from past actions of the business. The buyer is merely stepping into the shoes of the previous owner is a long stoông xã asphối purchase.

A long điện thoại tư vấn position is one where an investor purchases a Hotline option. Thus, a long call also benefits from a rise in the underlying asset’s price.

A long put position involves the purchase of a put option. The xúc tích behind the “long” aspect of the put follows the same ngắn gọn xúc tích of the long Hotline. A put option rises in value when the underlying asmix drops in value. A long put rises in value with a drop in the underlying asset.

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Long Position Profits

In a long asmix purchase, the potential downside/loss is the purchase price. The upside is unlimited.

In long calls and puts, the potential downsides are more complicated. These are explored further in ouroptions case studyOptions Case Study – Long CallTo study the complex nature và interactions between options & the underlying asphối, we present an options case study. It"s much easier to.

Short Positions

A short position is the exact opposite of a long position. The investor hopes for, & benefits from, a drop in the price of the security. Executing or entering a short position is a bit more complicated than purchasing the asmix.

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In the case of a short stochồng position, the investor hopes lớn profit from a drop in the stoông xã price. This is done by borrowing X number ofsharesStockWhat is a stock? An individual who owns stochồng in a company is called a shareholder and is eligible to claim part of the company’s residual assets and earnings (should the company ever be dissolved). The terms "stock", "shares", & "equity" are used interchangeably. of the company from a stockbroker & then selling the stochồng at the current market price. The investor then has an open position for X number of shares with the broker, that has to lớn be closed in the future. If the price drops, the investor can purchase X amount of stochồng shares for less than the total price they sold the same number of shares for earlier. The excess cashCash EquivalentsCash and cash equivalents are the most liquid of all assets on the balance sheet. Cash equivalents include money market securities, banker"s acceptances is their profit.

The concept of short selling is often difficult for many investors lớn grasp, but it’s actually a relatively simple process. Let’s look at an example that will hopefully help clarify things for you. Assume that stochồng “A” is currently $50 per nội dung. For one reason or another, you expect the stochồng price to decline so you decide lớn sell short lớn profit from the anticipated fall in price. Your short sale would work as follows:

You put up a margin deposit as collateral for your brokerage firm lớn loan you 100 shares of the stochồng, which they already own.When you receive the 100 shares loaned to lớn you by your broker, you sell them at the current market price of $50 per chia sẻ. Now you no longer have sầu any shares of the stochồng, but you vì have sầu the $5,000 in your tài khoản that you received from the buyer of your 100 shares ($50 x 100 = $5,000). You are said lớn be “short” the stoông xã because you owe your broker 100 shares. (Think of it as if you said to someone, “I’m 100 shares short of what I need to pay baông chồng my broker.”)Now assume that, as you anticipated, the stock’s price begins lớn fall. A few weeks later, the price of the stoông chồng has dropped all the way down to lớn $30 a chia sẻ. You don’t expect it to go much lower than that so you decide to cthua trận out your short sale.You now buy 100 shares of the stoông chồng for $3,000 ($30 x 100 = $3,000). You give those 100 shares of stoông chồng khổng lồ your broker khổng lồ pay hyên ổn back for (replace) the 100 shares he loaned you. Having paid back the 100 nội dung loan, you are no longer “short” the stoông xã.You have made a $2,000 profit on your short sell trade. You received $5,000 when you sold the 100 shares your broker loaned you, but you were later able lớn buy 100 shares lớn pay hyên ổn baông xã for only $3,000. Thus, your profit is figured as follows: $5,000 (received) – $3,000 (paid) = $2,000 (profit).

Short stoông chồng positions are typically only given lớn accredited investors, as it requires a great deal of trust between the investor & broker khổng lồ lover shares lớn exedễ thương the short sale. In fact, even if the short is executed, the investor is usually required to lớn place a margin deposit or collateral with the broker in exchange for the loaned shares.

Other Short Positions

Short call positions are entered into lớn when the investor sells, or “writes”, a call option. A short call position is the counter-các buổi party to a long Điện thoại tư vấn. The writer will profit from the short Gọi position if the value of the call drops or the value of the underlying drops.

Short put positions are entered into when the investor writes a put option. The writer will profit from the position if the value of the put drops or when the value of the underlying exceeds the strike price of the option.

Short positions for other assets can be executed through a derivative known as swaps. A credit default swap, for example, is a contract where the issuer will pay out a sum to lớn the buyer if an underlying asphối fails or defaults.

The Bottom Line

There is a wide variety of long & short positions that traders may adopt. A knowledgeable investor will have grasped the many advantages and disadvantages of each individual type of long và short positions before attempting lớn incorporate using them inkhổng lồ his or her trading strategy.


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