What exactly is a Long position? For those who are new to trading, this question is asked very often, so I want to share a clearer understanding of Long and Short orders.

Simply put, a Long position is when we place a buy order for an asset, expecting the price to go up, and we are waiting for the right moment to sell for a profit from the price difference. For example, if we set a Long position at 41 baht, it means we buy the asset at 41 baht and wait for the price to rise to 42 baht, then sell to make a profit of 1 baht. If the price does not move as expected and instead drops, we may need to close the position and accept a loss.

As for a Short position, it’s the opposite. We place a sell order first, expecting the price to decrease, and then buy back at a lower price to profit from the difference. For example, selling at 41 baht and waiting for the price to drop to 40 baht, then buying back to gain a 1 baht profit. But if the price rises instead of falling, we will incur a loss.

In reality, Long and Short positions are not applicable to all instruments. They are mostly used with derivatives, such as CFD contracts or certain stock markets. Before trading, you should check whether the instrument you’re using allows profit from falling prices.

Let’s look at a real example. Suppose we hear that PEAR company has better earnings this year. We decide to buy 100 shares at $350 each, spending $35,000. This is a Long position. Later, when the news comes out and PEAR’s stock price jumps to $400, we sell the shares and get back $40,000, making a profit of $5,000.

Conversely, suppose we hear that a country supplying raw materials to ORANGE company will suspend exports, so we expect ORANGE’s stock to fall. We perform a Short sale by borrowing 100 shares from a broker and selling them at $350, receiving $35,000. Later, the stock price drops to $300, so we buy back 100 shares at this price, costing $30,000, and return the shares to the broker, making a profit of $5,000.

The benefit of understanding Long and Short positions is that we don’t have to wait only for a bullish market. We can also profit from a bearish market. That’s the flexibility traders need to have.