I just realized that many new participants in the derivatives market don’t really understand what “long” and “short” mean, so I’d like to share some experience. Simply put, long and short are the two most basic trading strategies that anyone who wants to trade forex, crypto, or derivatives must master.

A long (buy) position is when you expect the price to rise, so you buy at a low level and hope to sell at a higher level to profit from the difference. Conversely, a short (sell) position is when you borrow assets from the exchange, sell at the current high price, and then buy them back at a lower price in the future to return the assets to the exchange while keeping your profit. At first glance it may seem simple, but in reality it’s much more complex—especially when leverage is involved.

The best part of long and short is financial leverage. If you have 1000 USD and use 1:10 leverage, you can open a position worth 10,000 USD. If the price moves in your favor by 10%, you earn 1000 USD profit—essentially doubling your account. But if the price moves against you by 10%, you lose all of your initial 1000 USD, which is what’s commonly called account liquidation (burning the account). That’s why risk management is extremely important.

So what does “short” mean in practice? You’re betting that the price will go down. But what’s the danger of shorting? It’s called a Short Squeeze. Unlike long positions, whose maximum loss is 100% (when the price drops to 0), short positions have theoretically unlimited loss risk because the price can rise without limit. When an asset suddenly spikes sharply upward, short sellers are forced to buy back aggressively to cut their losses, and that buying pressure pushes the price up even more. The GameStop event in 2021 is a classic example—hedge funds lost billions of USD due to a Short Squeeze.

Another risk is a Margin Call. When you trade with margin, the exchange monitors your account. If your losses exceed the maintenance margin, the exchange issues a Margin Call warning. If you don’t deposit more funds, the system automatically closes your positions (liquidation) to protect the exchange’s capital. At that point, your account balance goes to 0.

However, long and short aren’t only used for speculation. Fund managers and CFOs often use hedging strategies (risk hedging). For example, if you hold 1000 Apple shares long-term but worry that the market will drop in the short term, instead of liquidating everything, you can open a derivative short position on the S&P 500 index. The profit from the short position can offset the downside of the underlying portfolio, helping to protect your assets.

From a technical standpoint, to decide when to go long, you should analyze candlestick patterns such as piercing lines, pin bar bottoms, and double bottoms, along with indicators like MACD, RSI, and Ichimoku. Similarly, when you want to go short, look for double tops, trend lines, price channels, and indicators like MACD, Bollinger Band, and MA.

One important point is: what’s the difference between short and long in the real crypto market? In essence, they’re the same, but crypto operates 24/7 with extremely large price fluctuations and leverage as high as 1:100. Therefore, the risk of liquidation in crypto happens faster and more violently than in traditional stocks.

Finally, you shouldn’t use long and short at the same time on the same product, because that only makes you pay trading fees without generating any profit. But you can absolutely use long on one currency pair and short on another if your analysis shows different trends. For example, when USD strengthens, you might short EUR/USD but go long USD/JPY.

Remember, trading derivatives involves high risk and isn’t suitable for all investors. Start with a demo account, and learn carefully before using real money. Past performance doesn’t guarantee future results, so always manage your risk well.