If crypto trading is new to you, then you might have wondered what the terms such as long and short mean in crypto trading processes. Crypto traders frequently use these terms when opening and closing futures positions.
When you are dealing in day trading, “long” and “short” terms are used depending on whether the particular trade was started with a buy or a sell.
Let us explore more about these two core concepts so that you and other newcomers who wish to earn from the market can trade confidently.
What is Long & Short in Crypto Trading?
Cryptocurrency traders tend to use different industry-specific jargon that is not totally understood by naive traders.
To tell you in nutshell, long and short positions are the two possible movements of a price needed to gain a profit.
When you open long positions, you hope that the prices will show an increment from a given point. Here, we can say that you have “gone long” or bought the cryptocurrencies.
On the other hand, in short positions, you anticipate the prices to show a reduction from a given point; so, here, we say that you have “gone short” or sold the cryptocurrencies.
Though buying and selling is the usual process for spot exchanges, you are allowed to go long or short on cryptocurrencies without dealing with them.
This is permitted only on derivatives exchanges that enable traders to trade in futures, options, contracts, and other derivatives products.
As you start trading, however, you are likely to witness more long positions than shorts if the market is bullish, as an increasing number of traders would wish to leverage the price increment.
On the contrary, with the bearish market trend, you are likely to witness more short positions than long ones.
More often than never, professional traders prefer to purchase the dips and sell them when they show a rise. This means they open long positions when the price retreats and sell when it meets resistance.
But, this is just an observation.
When to go long:
You should go long when you anticipate the price of a cryptocurrency to rise.
Make sure your trading decision is backed by some kind of fundamental or technical analysis. There are many crypto exchange platforms that share real-time market updates. You can follow these updates to make decisions.
For example, if you get a news update saying an XYZ blockchain project has entered into a high-profile partnership or is undergoing a crucial upgrade, You can go long on its native token.
You are recommended to stay active on social media pages that focus on trading and read the news regularly to fathom the market sentiment precisely. You can also look for patterns on the charts and check the exchange platform you are using to trade in crypto.
No matter which analysis you rely on, you should be sure that the price will go up if you want to go long. Otherwise, you are likely to lose your hard-earned money.
Unlike foreign exchange pairs, cryptocurrencies are often traded against fiat currencies. This is the reason why you might also see investors following the “buy and hold” strategy, especially concerning Bitcoin.
When to go short:
You should go short when you anticipate a cryptocurrency price to decline.
As said above, your decision should be backed with credible market data and insights. You can open short positions when the market has been increasing for an extended period, and it might reach the point of saturation.
In short, going short will be profitable when the price cannot break a resistance level and goes downward.
How to long and short crypto In brief with Bitcoin’s example?
Let us understand the above-mentioned points through a Bitcoin example.
Example: Going Long
Say Bitcoin market price is $5000. If you believe the price will show an increment, you decide to buy 10 BTC at $5000. This equals the value of $50,000.
In case the exchange you are using offers leveraged trading, you don’t have to invest worth the total value of this trade. Rather, you only have to pay the margin.
If the margin is 1% of the total position size, you have to invest $500 only, and you could open the position.
Now, if the BTC performs as per your anticipation and the price climbs up, you can fix a profit. BTC reaches $5150, and you close the position.
You will have to multiply the difference between the closing and the opening price of the position with its size, and you will get the profit value.
5150 – 5000 = $150. Now, you multiply $150 by 100 and get a profit of $1500 because you had gone “long” here.
Example: Going Short
Suppose 1 Bitcoin is trading around $7,400. You expect negative market news, and you believe that they will negatively affect the price of BTC. Hence, you sell 10 Bitcoins at $7,400, which equals $74,000 in value.
Suppose Bitcoin requires a margin of 1%. This means that you will have to deposit $74,000×1% = $740 as margin.
The news comes, and the Bitcoin drops to $7,354. Here, you can secure your profit, and hence, you buy back 10 BTC at $7,354
As this was a short position, you minus the closing price of $7,354 of the position from the opening price to calculate profit, and then multiply the result by its size.
7,400 – 7,354 = 46. And, your profit will be equal to $4600 (46 x 100).
We hope you have understood the long and short concepts of trading.
While knowing what long and short concepts mean, you must know that you can open these positions on any crypto exchange that offers derivatives trading services.
You are suggested to use an exchange that is user-friendly and allows trading in the region you live in. Even if you are a beginner, almost every credible and known crypto exchange will be a perfect choice for you.
Crypto exchanges such as PrimeXBT and Bybit are available in many countries for anyone who wants to go long or short in cryptos.