What does Long and Short Mean in CFD Trading?
One of the most significant barriers facing traders looking to get started in the world of online trading and investment is the sheer amount of jargon and technical lingo you need to understand. Although it might not seem the most vital aspect of learning to trade, having a decent grasp of the most popular technical trading terms is essential to building a successful trading career.
For example, how can you expect to understand the latest CFD industry news if you don’t fully understand the language in which the news articles are written? For this reason, it is a good idea to identify and define some of the key trading terms you might come across throughout your early trading career. This will give you a better idea of how the markets work and give you the tools necessary to engage with all the information out there.
With that said, two of the most common phrases you will see in CFD trading articles, guides, blog posts, and reviews, are “going long” and “going short.” But what exactly do they mean?
Going long:
When a trader describes themselves as “going long” or taking a “long” position on a particular CFD, it is a way of describing what kind of trading position they are taking. A trader takes a “long” position when they purchase a stock, security, CFD, currency, or any other financial asset, expecting it to rise in value by the time they decide to sell. Holding a long position is considered a “bullish” position as it indicates confidence in the future health of the markets. Day traders will often use the term “long” and “buy” pretty much interchangeably, although the two terms are technically distinct.
It is also important to remember that “going long” can entail several different “long” positions, and the meaning may change depending on the type of asset you are going “long” with. For example, a trader might go “long” with a set sell option already established or, conversely, they might be in an open long position with no set point at which they will sell. The risk associated with going “long” will also depend on what length of time you decide to go long.
Going short:
If going “long” is holding an asset or security with the belief that it will increase in value over time, going “short” is, essentially, the opposite. A trader holds a “short” position when they believe the asset or security in question will fall in value in the near or mid-term future. Most often, this term is used in the context of “short selling.” Short selling, or “shorting”, a stock involves a trader selling a security with the belief that not only will it fall in value in the short term, but also with a view towards repurchasing it at a lower price. A common type of short selling occurs when the seller borrows a particular stock or security from a lender, pays a borrowing fee to do so, and then sells that borrowed asset, repurchasing it later when it has fallen in price. Short selling is a popular strategy when the markets are experiencing volatility.
