What is a Long position? Understand how to profit from bullish and bearish markets

When it comes to trading, many people are often confused about what Long stocks and Short Positions are. In fact, these two terms are fundamental concepts that traders need to understand in order to buy and sell derivatives and other financial instruments correctly.

The Difference Between Long Position and Short Position

What is a Long Stock (Long Position)

When a trader places a Long order, it means they are buying an asset with the belief that the price will increase in the future. This strategy is called “buy low, sell high” — the trader purchases the asset at a low price and waits for the price to rise, then sells to realize a profit from the price difference.

For example, if a trader opens a Long Position at 41 baht, it means they have bought the asset. If the price rises to 42 baht, they can close the position by selling at the new price and make a profit of 1 baht. However, if the price drops to 40 baht and they close the position, it would result in a loss because they bought high and sold low.

What is a Short Position

Conversely, a Short Position involves placing a sell order, where the trader opens a short sale expecting the price to decline. They then buy back the asset at a lower price. This strategy is called “sell high, buy low.” Short orders are not available for all instruments but are used in derivatives such as CFDs, Forex, and futures contracts only.

If a trader opens a Short Position at 41 baht, they are selling the asset. When the price drops to 40 baht, they can buy back the asset and close the position, earning a profit of 1 baht. But if the price rises to 42 baht, instead of closing, they would incur a loss of 1 baht because they sold at 41 baht and have to buy back at a higher price of 42 baht.

Examples of Using Long and Short in Stocks

Case Study: Trading a Long Position in Stocks

Suppose an investor named Tim analyzes and learns that PEAR company has improved its performance and believes the market will respond positively. He decides to buy 100 PEAR shares at $350 per share, spending a total of $35,000. When positive news about the company is announced, the stock price reacts and rises to $400. Tim chooses to sell the shares at this price, earning $40,000 in his account. The net profit is $5,000 from buying low and selling high.

Case Study: Trading a Short Position in Stocks

In another scenario, Tim receives information that the country supplying key raw materials for ORANGE company will stop exports. He predicts the stock price will fall and decides to open a Short Position by borrowing 100 ORANGE shares from a broker and selling them at $350 per share, earning $35,000. After the negative news is released, the stock price drops to $300. Tim buys back 100 shares at this price, spending $30,000, then returns the shares to the broker and closes the Short Position, making a profit of $5,000 from the price difference.

Long Stocks and Profit-Making in Modern Markets

Long stocks is a traditional profit-making method used by families and most investors — buy and hold, then sell when the price rises. However, today there are many financial instruments that allow traders to profit from both bullish and bearish trends. Derivatives such as CFDs make it easier to place Short or Long orders due to fast trading processes and leverage systems, enabling traders to use less capital but potentially earn higher profits.

Both Long and Short Positions carry risks. Losses can occur if market predictions do not go as expected. Traders should thoroughly understand these risks before starting to trade.