The terms long and short positions reflect whether a trader thinks crypto will rise or fall in value. Cryptocurrency investors and traders mostly use industry-specific jargon which is not entirely understood by beginners.
While ‘longs’ and ‘shorts’ are not considered to be the most technical terms, they remain at the core of trading. Newcomers must understand these terms before they start investing in the sector. It is expected that more newcomers will flood the cryptocurrency market amid the widespread devaluation of fiat currencies as a result of aggressive stimulus that is backed by central banks and governments.
In general, long and short positions highlight the two possible directions of any price in the market needed to make a profit. In the long positions, the crypto traders and investors hope that the price will surge from a particular point of focus. In that case, the trader decides to ‘go long’ or buys the crypto.
On the other hand, in a short position, the trader expects that the price will decline from a given point and the trader goes short or sells the crypto to make a profit. Buying and selling are typical for the spot exchanges. But, traders can go long or short on crypto without having to buy or sell it.
That strategy is possible on derivatives exchanges that offer options, futures, contracts for differences, and many other derivatives products. When you trade these derivatives, you are provided with exposure to cryptos via short and long positions but without ‘physically’ owning or dealing with any of them.
With that said, in a bullish market, you will always see more long positions than short positions because many traders aim to benefit from the ascension in market prices. On the other hand, when the market is bearish, short positions exceed the long positions.
Nonetheless, that is simply an observation and not a rule to follow. Expert traders and investors normally buy the dips and sell the rips; they open long positions whenever the price retreats from recent peaks and sell their crypto when the price is testing resistance levels.
When To Open A Long Position
Traders and investors should consider going long whenever they expect that the price of crypto will increase. They can go long after careful analysis of the market conditions depending on the time frame with which they are operating.
For instance, in the case that you are trading on the daily chart and think that the crypto price will increase during the coming days or weeks, you can go long. You can choose to buy the asset on a spot exchange or open a long position through futures, options, or using any other derivatives contracts.
But, decisions must be backed by some kind of technical or fundamental analysis. For instance, if you discover that a blockchain project has got a high-profile partnership or is doing an important upgrade, you can go long on its native token since it is expected to surge in the middle and long-term.
In general, you need to remain quite active on social media and read all available news regularly to accurately determine the market sentiment. Also, you can look for patterns on the charts and check out whether the crypto price has broken above a critical resistance line; such components may indicate the extension of an uptrend in the market.
You should always be confident that the price will surge if you want to go long regardless of the type of analysis that you rely on. Otherwise, you will end up betting against the market and you will lose your investment.
The foreign exchange pairs have no particular long-term target. But unlike these pairs, cryptos act like company shares in the matter that they are normally traded against fiat currencies, mostly the US dollar, and they always strive to go higher. That is why many traders and investors prefer to stick to the “buy and hold” strategy, mostly when it comes to bitcoin.
When To Go Short
Traders are advised to go short only when they anticipate that the price of a crypto will plunge. You can go short on a specific crypto whenever you expect that its price will decline for a while.
As highlighted above, it is important to back your decisions with reliable fundamental market analysis. As a general rule, the short-sellers open their positions whenever the market has reached an overbought level. The market is overbought whenever it has increased for a long time and the uptrend has become supersaturated.
Furthermore, going short makes a lot of sense whenever the price fails to break a resistance level and begins dropping from it. Since the crypto space is still at a nascent stage, bitcoin and other altcoins can experience steep fluctuations without anything tangible backing the moves. Such a market makes analysis processes a bit tricky.
Nonetheless, always ensure that you are aware of all the factors that are affecting any given market before you go long or short.
Where Can You Go Long Or Short?
It is allowed to go long or short on any crypto exchange or available trading platform provided that they offer spot or derivatives trading services. Traders normally go for well-established platforms like Binance or Coinbase, among many others. Coinbase is the biggest crypto exchange in the US while Binance is among the fastest-growing cryptocurrency trading platforms globally.
Binance offers a wide range of services that include futures, spot, options, and over-the-counter trading. Notably, Coinbase, Binance, and many other popular exchanges might appear somewhat sophisticated for beginners. If anyone is new to crypto and is seeking an easy experience, they can check out Changelly PRO.
While the platform offers many features, trading on it is simple since it has intuitive dashboards and a terminal. Nevertheless, it is not only favorable for beginners; experienced traders can also open long and short positions on Changelly PRO. The terminal comes with various tools and perks which include security layers, a multicurrency wallet, multiple order types, and many other features.
How Margin Trading Can Enhance Targets Of Long And Short Positions
Margin trading can increase the possible results of long and short positions due to leverage; which is borrowed funds. Going short or long might be lucrative, mostly when the crypto market is lucrative. But still, the expert traders go for margin trading to amplify possible profits by several times.
Nonetheless, the risks involved also increase by the same degree. Thus, margin trading should be used with caution. Margin trading comprises of trading with leverage, and it can be useful for short and long positions. Margin accounts use funds offered by third parties, for instance, the exchange platform or other traders that are incentivized for contributing their money or crypto funds.
Therefore, traders can invest greater amounts by leveraging positions and magnify the possible profit by many times. The needed sum that an investor has to commit as a percentage of the total order amount is known as margin, hence the name.
In the case of leverage, it represents the ratio of the borrowed funds to the margin. For instance, if anyone wants to open a long position worth $10,000 with 10-to-one leverage (or 10x leverage), you will need to invest $1,000 of your money. Margin trading is a method used to enhance the possible profits of your long and short positions.