Recently, I realized that many new traders still confuse long and short positions. In fact, these are two core concepts that anyone wanting to make money from the financial markets must understand clearly.

Let's imagine this: long vs short are two sides of the same coin. A long position is when you predict the price will go up, so you buy at a low level and wait to sell at a higher level to profit from the difference. Conversely, a short position is when you believe the price will go down, borrowing the asset from the exchange to sell at the current high, then buy back at a lower price to return the asset to the exchange and keep the profit.

But here’s the part most people overlook: the real power of long and short lies in leverage. You don’t need to have 100% of the capital to trade. For example, with $1,000 and 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, doubling your initial capital. But if it moves against you by 10%, your account is wiped out.

I see many new traders get caught up in potential profits and forget about the risks. Specifically, there are two things you must remember if you want to survive long-term in the market:

First is Margin Call — when losses exceed the maintenance margin, the exchange will issue a warning, and if you don’t deposit more funds, the system will automatically close your position. Your account can be wiped out in an instant.

Second is Short Squeeze — the deadly trap of short positions. Unlike long positions, which have a maximum loss of 100% (if the price drops to zero), short positions have unlimited risk because the price can rise indefinitely. The 2021 GameStop event is a prime example — hedge funds that shorted the stock were wiped out of billions of dollars due to a massive short squeeze.

Now, when should you use a long position? When the market has positive news — low inflation, rising GDP, good employment — these usually create a buying sentiment. Or when technical indicators like MACD, RSI show signs of a bullish reversal. For short positions, on the other hand, you need to see negative signals or technical indicators warning of a downtrend.

An interesting point is that experts don’t just use long and short for speculation, but also for hedging risks. Suppose you hold 1,000 shares of Apple long-term but are worried about an upcoming market downturn. Instead of selling off and losing your long position, you can open a short position on the S&P 500 index to offset the loss. When the market declines, the profit from the short will protect your portfolio.

A common mistake I see many traders make is simultaneously using long and short on the same asset at the same time. This only causes you to pay trading fees without making any profit. Instead, you should use long vs short across different markets. For example, if the USD is strengthening, short EUR/USD but go long USD/JPY.

Additionally, when trading long-term, don’t forget about overnight fees (swap fees). Every time you hold a long or short position overnight, you pay a small fee because you are borrowing capital or assets from the exchange. Holding positions for weeks or months will significantly erode your profits.

The difference between crypto long/short trading and stocks is also worth noting. The crypto market operates 24/7 with extremely high volatility and leverage (up to 1:100). Therefore, the risk of liquidation happens faster and more violently than in traditional stocks.

In summary, long vs short are powerful tools but also very dangerous if you don’t manage risk properly. Before entering the market, make sure you understand how they work, the potential risks, and always have a stop-loss plan ready. That’s the key to surviving long-term in this game.