Long and short

Long and short are the two directions of a trade. Long: buying to profit from a rise. Short: selling to profit from a fall, buying back cheaper later.

How it works

A long is intuitive: buy low, sell high, and the difference is your profit. That is how a regular purchase of a coin or stock works.

A short reverses the order. In the classic version you borrow the asset, sell it now, then buy it back later and repay the loan. If the price fell, buying back is cheaper and you keep the difference. On crypto exchanges shorts are usually opened with futures: you borrow nothing yourself, the contract simply gains when the price falls.

Shorting is riskier than it looks. A price can only fall to zero but can rise without limit, so a short's loss is unlimited in theory. On futures liquidation caps it, but you still lose the collateral. Perpetual futures also have funding, a regular payment between longs and shorts.

Example with numbers 1

Long: you buy 1 ETH at $3,000 and sell at $3,300. Profit is $300, or +10%. Had the price dropped to $2,700, you would have lost $300.

Example with numbers 2

Short: you open a 1 ETH short at $3,000 and close at $2,700. Profit is $300. If the price rises to $3,600 instead, you lose $600, and the loss keeps growing until you close.

Common mistake

Beginners short "because it already went up too much", with no stop and high leverage. A rising market can keep rising longer than you can hold on, and a short squeeze can wipe such positions out in minutes. In either direction set a stop-loss in advance and size the position so the loss at the stop stays small.

Questions and answers

What do long and short mean in simple terms?

Long means you make money if the price goes up. Short means you make money if the price goes down.

How can you profit when crypto falls?

By shorting, for example with a futures contract or margin trading. It is always a higher-risk trade, so use a stop-loss and low leverage.

What is a short squeeze?

It is a sharp price spike when short sellers rush to close losing positions by buying, or the exchange liquidates them. Those purchases push the price higher still and knock out the next group.

Long and short

How it works

Questions and answers

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