In the world of stock market trading, the two terms of long trades and short trades can make all the difference in the world. This allows one to know whether or not the trade was initiated by either buying or selling first. The major difference is that a long trade is first initiated by purchasing with full intention to sell for a higher price sometime in the future. A short trade is initiated when selling before purchasing with the intention to go back and repurchase the stock for a much lower price to make a profit.
Day traders that are involved in a long trade purchase assets in the hope that the price will increase. The terms “buy” as well as “long” is oftentimes used by day traders similarly. This type of reference works when they may refer to “l am long Apple,” which insinuates that they own shares in the company Apple Inc. When a trader references that they are going to “go long” or are “going long,” it means they are interested in purchasing that particular asset. For example, if a day trader is going long on 1,000 shares of ABCD stock at $10, the transaction would then cost them $10,000. If they were to turn around then and sell the ABCD shares for $10.20, they would receive $10,200 and make a net profit of at least $200.
Traders that specialize in short trades sell their assets before even purchasing them in hopes that the price will lower. This typically can become confusing because this is not how things are done in the real world. Usually, one would have to purchase something before ever selling it in real life, but in the finance world, day traders are able to buy and then sell or sell then buy. If a trader were to short 1,000 shares of their ABCD stock at $10.00, they would then receive $10,000 into their own account, but for the moment this is still not their money. Their account would indeed show that they have negative 1,000 shares, and they would then still have to bring that balance back up to a level playing field of 0 by purchasing at least another 1,000 shares.
About The Author
Jeff Bishop is a Professional Trader, Entrepreneur, and Founder of popular trading programs Raging Bull Trading and Weekly Money Multiplier. Jeff brings over 20 years of experience working as a trader, and has become known for his expertise in options trading and ETFs. He created Raging Bull Trading in 2010, alongside fellow trader Jason Bond, in order to provide a comprehensive education of trading in the stock market. Jeff Bishop created Weekly Money Multiplier in 2018, and is a trading program focused specifically on options trading.