I just realized that many newcomers to the derivatives market are still confusing Long and Short. These two concepts may sound simple, but they’re the foundation that determines whether every trading position succeeds or fails.

Basically, it works like this: Long (buy) is when you expect the price to rise—you buy at a low price so you can sell higher later. Short (sell) is when you expect the price to fall—you borrow an asset from the exchange to sell at the current price, then buy it back at a lower price to return it to the exchange and keep the profit. The great thing about derivatives long/short is that it lets you make money whether the market is going up or going down.

But this is where we need to issue a warning: both Long and Short come with leverage (Leverage). You don’t need to use 100% of your capital to trade—just post margin (Margin). For example, with 1,000 USD and 1:10 leverage, you can open a position worth 10,000 USD. If the market moves in the direction you expect by 10%, you profit double. But if it moves against you by 10%, you lose your initial 1,000 USD entirely—that’s called account liquidation (burning your account).

A position (Position) is the term for the trading order you currently have open. Each exchange has limits on how many positions you can hold, which helps protect the market from price manipulation.

When using a Long order, you need to look for signs that the price is about to rise. You can rely on positive news (high GDP, low inflation) or technical patterns such as piercing candles, double bottoms, or indicators like MACD and RSI. For Short orders, the rule is the opposite—you wait for bearish signals such as double tops, MACD crossing downward, or narrow Bollinger Bands.

But the most dangerous part is these two risks: Margin Call and Short Squeeze. If your losses exceed the margin you maintain, the exchange will ask you to deposit more funds. Otherwise, the system automatically closes your position (Liquidation), and your account goes to 0. As for Short Squeeze, it happens when the price unexpectedly surges upward, forcing short sellers to rush to buy back and cut their losses—this, in turn, pushes the price up even more dramatically. The 2021 GameStop event is the classic example: a hedge fund lost billions of USD because it was hit by a Short Squeeze.

Actually, derivatives long/short also has another application that very few people know: Hedging (risk hedging). For example, suppose you hold 1,000 Apple shares long-term and believe the company will develop well over the next 5 years. But in the short term, the market panics due to bad macro news. Instead of liquidating everything, you can open a Short position on the S&P 500—or even on Apple itself. The profit from the Short can offset the losses from your underlying portfolio, helping you stay safe through the storm.

Quick comparison: The advantage of Long is that you can profit when prices rise, and you can hold the underlying asset (receive dividends if it’s a stock). But you lose money when prices fall. Short is the opposite—you profit when prices fall—but the risk of losses is unlimited (because the price can rise without limit), and you don’t own the underlying asset.

One thing to remember: you should not open Long and Short at the same time on the same product. Doing so only wastes trading fees without generating any profit. However, you can use Long/Short across different markets—for example, short EUR/USD when the USD is strong, but long USD/JPY at the same time.

With Crypto, the long/short derivatives mechanism is exactly the same, but the risks are much higher because the market operates 24/7, price fluctuations are extremely large, and leverage can be as high as 1:100. Liquidation (burning orders) in Crypto happens faster and more violently than in traditional stocks.

When you hold a position into the next day, the exchange charges an overnight fee (Swap/Funding Rate). If you trade long-term (holding for a few weeks or months), this fee will gradually eat away at your profits.

In summary, understanding how derivatives long/short works, managing risk well, and never forgetting Margin Call—that’s the key to surviving in this market long-term.