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Long and Short Positions

Long vs Short

FeatureProfit when...
Long PositionAsset price rises. Buy low, sell high — standard ownership.
Short PositionAsset price falls. Borrow shares, sell, buy back cheaper, return.
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Gain a deeper understanding of long and short positions in stock trading, including what they mean, how they work, and what potential profits or losses they can bring.

Long Positions

Having a “long” position in security means that you own the security. Investors maintain “long” security positions with the expectation that the stock will rise in value in the future. The opposite of a “long” position is a “short” position.

In a long (buy) position, the investor is hoping for the price to rise. An investor in a long position will profit from a rise in price. The typical stock purchase is a long stock asset purchase.

A long call position is one where an investor purchases a call option. Thus, a long call also benefits from a rise in the underlying asset’s price.

A long put position involves the purchase of a put option. The logic behind the “long” aspect of the put follows the same logic of the long call. A put option rises in value when the underlying asset drops in value. A long put rises in value with a drop in the underlying asset.

Short Positions

A "short" position is generally the sale of a stock you do not own. Investors who sell short believe the price of the stock will decrease in value. If the price drops, you can buy the stock at a lower price and make a profit. If the price of the stock rises and you buy it back later at a higher price, you will incur a loss. Short selling is for the experienced investor.

A short position is the exact opposite of a long position. The investor hopes for, and benefits from, a drop in the price of the security. Executing or entering a short position is a bit more complicated than purchasing the asset.

In the case of a short stock position, the investor hopes to profit from a drop in the stock price. This is done by borrowing X number of shares of the company from a stockbroker and then selling the stock at the current market price. The investor then has an open position for X number of shares with the broker, which has to be closed in the future. If the price drops, the investor can purchase X amount of stock shares for less than the total price they sold the same number of shares for earlier. The excess cash is their profit