I just realized that many newcomers to the market often confuse long orders and short orders, so I decided to write this to share my experience. Basically, long and short orders are the two most fundamental derivatives trading strategies that everyone needs to understand clearly.

A long order simply means you predict the price will go up, so you buy at a low price and wait to sell at a higher price. Conversely, a short order means you expect the price to go down, so you "borrow" the asset from the exchange to sell at the current high price, then buy back at a lower price to return to the exchange and keep the profit margin.

But the trap here is leverage. When you use long or short orders, you don't need to deposit 100% of the contract value. For example, you only have $1,000, but with 1:10 leverage, you can open a position worth $10,000. If the price moves in your favor by 10%, you make a $1,000 profit. But if it moves against you by 10%, you lose your entire initial capital. That’s why risk management is crucial for survival.

I want to emphasize two major risks that new traders often overlook. First is Margin Call — when your losses exceed your maintenance margin, the exchange will issue a warning, and if you don’t deposit more funds, the system will automatically close your position, bringing your account to zero. Second, if you’re playing short, be careful of Short Squeeze. Long positions can lose a maximum of 100%, but short positions can face unlimited losses because the price can keep rising. The 2021 GameStop event is a classic example — the price skyrocketed, and short funds were wiped out of billions of dollars.

When should you use a long order? When you see positive signals from news or technical analysis — for example, low inflation, good GDP, or indicators like MACD and RSI showing an uptrend. Conversely, short orders are suitable when the market is negative, inflation is high, and central banks are tightening monetary policy.

There’s a clever strategy used by CFOs and professional traders called Hedging. Suppose you hold 1,000 shares of Apple long-term but are worried about short-term volatility. Instead of selling, you can open a derivative short position on the S&P 500 or even Apple itself. At this point, the profit from the short position will offset the decline in your underlying portfolio.

An important note: you should not use long and short orders on the same product at the same time, because you will only incur trading costs without making a profit. However, you can use them in different markets — for example, short EUR/USD when the USD is strong, but long USD/JPY at the same time.

The big difference between crypto trading and stock trading is that the crypto market operates 24/7 with extremely large price swings, and leverage can go up to 1:100, so liquidation risks happen faster and more violently. If you’re trading long or short in crypto, you need to be twice as careful.

I recommend starting with long orders first, because the risks are easier to control. Once you’re proficient, learn short orders along with hedging techniques. And remember, derivatives trading carries high risks, past performance does not guarantee future results. Consult a financial advisor before getting started.