- Longing or shorting is taking a stance in the market the expectation that the price will go up or down
- Users rely on trading brokers to long or short futures contracts for a token
- Yieldfund automates long and short trading, eliminating the need for manual intervention
Trading with a long or short position means making a trade and expecting the price to go up or down. These strategies are fundamental to every experienced trader who uses existing knowledge to time the market.
What is a long position in crypto?
Opening a long position means taking a position in a crypto token and expecting the price to increase over time. It means buying and holding and then selling, hoping to generate profit from the token's price increase.
Investors make money only when they exit the position, and it is part of a straightforward strategy of buying low and selling high. This approach is the foundation of investment strategies for both retail and institutional investors.
What is the risk of a long position
The risk of opening a long position involves losing part of your investment if the token's price falls instead of rises. This is one of the main drawbacks of using futures markets to open a long position. Since users don't own the assets outright, the maximum loss is limited to the invested amount, as the price cannot drop below zero.
Long vs short crypto positions: Key differences
The main difference between long and short positions is the direction in which the trader expects the market to move. A long position aims to profit when a cryptocurrency’s price rises, while a short position aims to profit when its price falls.
| Feature | Long Position | Short Position |
|---|---|---|
| Market expectation | The price will rise | The price will fall |
| Opening the position | Buy the asset or open a long derivative | Borrow and sell the asset or open a short derivative |
| Closing the position | Sell the asset or close the long contract | Buy back the asset or close the short contract |
| How profit is made | The closing price is higher than the entry price | The closing price is lower than the entry price |
| Maximum potential profit | Generally increases as the asset’s price rises | Limited because the price cannot fall below zero |
| Maximum potential loss | Limited to the amount invested for an unleveraged spot purchase; leverage can create larger losses | Theoretically unlimited in traditional short selling because the price can keep rising; exchanges normally liquidate leveraged positions earlier |
| Asset ownership | Possible when buying on the spot market | Usually no ownership; commonly executed using margin, futures or perpetual contracts |
| Main costs | Trading fees, spreads and potentially funding costs | Trading fees, spreads, borrowing fees and potentially funding costs |
| Liquidation risk | Applies when leverage is used | Applies when leverage is used |
For example, suppose Bitcoin is trading at €60,000. A trader who expects its price to increase could open a long position. If Bitcoin rises to €66,000, the position gains 10% before fees. If the price instead drops to €54,000, it loses 10%.
A trader expecting a decline could open a short position at €60,000. If Bitcoin falls to €54,000, the short gains 10% before fees. If Bitcoin rises to €66,000, the short loses 10%.
These results assume no leverage. With leverage, both profits and losses are magnified. A sufficiently large adverse price movement can trigger liquidation, meaning the exchange automatically closes the position to prevent further losses.
The way a position is created also matters. A spot long normally involves buying and owning the cryptocurrency. Long and short positions opened through futures or perpetual contracts do not require ownership of the underlying asset. Traditional spot shorting, meanwhile, usually involves borrowing the asset, selling it, and later buying it back.
What is the Bitcoin Long/Short ratio?
The Bitcoin long/short ratio compares the number of traders or positions expecting Bitcoin’s price to rise with those expecting it to fall. It is commonly used as a market-sentiment indicator.
The basic calculation is long positions divided by short positions, showing ratios above 1 mean there are more longs than shorts in the dataset.
When the ratio is below 1, it means shorts are higher, while a ratio equal to 1 shows an even split. For example, if an exchange reports that 60% of tracked accounts are long and 40% are short, the long/short ratio is 1.5. This means there are 1.5 long accounts for every short account.
However, the ratio does not necessarily show which side controls more capital. One large short position could outweigh several smaller long positions.
A high ratio may suggest bullish sentiment, but it can also indicate that the market is crowded with long positions. If the price falls, leveraged longs may be liquidated and add further selling pressure. Conversely, an unusually low ratio can signal bearish sentiment or a crowded short market that is vulnerable to a short squeeze.
Thus, a long short ratio should not be treated as a standalone signal to buy or sell Bitcoin. It is more useful when considered alongside funding rates, open interest, trading volume, or liquidation data, among others.
What is a short position in crypto?
Opening a short position means expecting the price of a token to decrease over time. A short position is, in fact, borrowing assets from a broker, selling them at the current market price, and then repurchasing them at a lower price. This can be done manually without using futures markets, but online crypto brokers facilitate this to remove friction.
To illustrate how going short works, suppose you anticipate the price of Ethereum will decrease from $3,000 to $2,000. In this scenario, you can utilize a broker to borrow 1 ETH and sell it at $3,000. When the price falls to $2,000, you buy back 1 ETH for $2,000, return it to the lender, and keep the $1,000 profit.
Short positions can also be executed through derivatives like futures contracts, allowing traders to speculate on price movements.
What is the risk of a short position
Short positions carry significantly higher risks than long positions, as the most dangerous aspect is the unlimited loss potential. Short positions are speculative, and if using a broker, the platform might demand additional funds to maintain the position. This also applies to long positions as well. Overall, the risks of a short position are the same as opening a long position in crypto.
What are long and short positions in crypto trading
Crypto long and short positions follow similar principles to traditional markets. What differs is that crypto operates 24/7 with no breaks on the weekend. What's more is that crypto is more volatile than stocks, with average daily price movements between 4% and 6% for Bitcoin or altcoins compared to less than 1% for stocks.
This means long and short positions face consistent price pressure and require holding positions through longer volatility cycles, which is not suitable for new and inexperienced traders. Short positions have similar risks of volatility impacting performance. For experienced traders, volatility plays to their advantage as a hedging tool rather than a primary profit strategy, protecting their long positions during expected downturns.
How to open and close long and short positions in crypto
Opening and closing a crypto position depends on whether you are trading on the spot market or trading a derivative.
How to open a long crypto position
To open an unleveraged long position on the spot market:
- Choose the cryptocurrency and trading pair, such as BTC/EUR.
- Decide how much you want to invest.
- Place a market order to buy immediately or a limit order at a chosen price.
- Once the order is filled, the cryptocurrency is held in your account.
- Consider setting an exit target and a price at which you will cut your loss.
To close a long futures or perpetual position, place an equivalent sell order or use the platform’s close position function. Selecting a reduce-only order can help prevent the closing trade from accidentally opening a new short position.
How to open a short crypto position
Opening a short means borrowing cryptocurrency, selling it at the current price, and attempting to buy it back later at a lower price. So a trader opens a sell contract without borrowing and selling the cryptocurrency manually. The position gains value when the market price falls below the entry price and loses value when it rises.
A margin short is normally closed by buying back the borrowed cryptocurrency and returning it to the lender. This is also known as buying to cover.
What happens if a leveraged position is liquidated
Leveraged positions require sufficient collateral to remain open. If the market moves against the position and its margin falls below the platform’s maintenance requirement, the exchange may automatically close some or all of it.
Liquidation can occur on both long and short positions. A sharp decline can liquidate a leveraged long, while a sharp increase can liquidate a leveraged short. Higher leverage places the liquidation price closer to the entry price, leaving less room for an adverse market movement.
The exact controls, margin requirements, and supported products vary by exchange and jurisdiction. Traders should understand the platform’s rules and all potential costs before opening a position.
What traders usually get wrong about short trading
Short trading (or shorting) can cause financial disturbances since traders often view them as long positions with reverse expectations. While shorting can have a similar effect as longing on a macro level, opening short positions for smaller periods requires additional monitoring, more sophisticated risk management, higher capital, and more structure to avoid adding emotions into trading.
Timing becomes crucial with short positions. Even correct predictions about price direction can result in losses if the timing is wrong. Many assets can remain "irrationally" high longer than traders can maintain their short positions.
Beginners often ignore the costs associated with shorting, including borrowing fees and margin interest, which can erode profits even when the price moves in the expected direction.
What brokers are there for long and short trading in crypto
Opening long and short positions can be executed through digital brokers while centralized cryptocurrency exchanges like OKX provide futures trading, which allows users to select their trading pairs with order management systems.
Futures trading has also been integrated on decentralized platforms, where trading takes place from within a user's wallet. Protocols like dYdX, Drift, or Hyperliquid provide futures trading, offering greater asset custody control but requiring more technical knowledge.
Centralized exchanges are easier to use, as they are familiar to the user, and, in some cases, futures trading can be done through regular trading brokers. On the other hand, decentralized options offer better security and direct wallet integration.
Common mistakes when going long vs going short in crypto
Long-position traders frequently make emotional decisions, holding losing positions too long, hoping for recovery, or selling profitable positions too early out of fear. Successful long traders develop strict exit strategies and stick to predetermined risk management rules.
Short-position traders often underestimate margin requirements and fail to set stop losses. The unlimited loss potential makes position sizing crucial—risking too much capital on short positions can lead to account destruction.
Maximize Your Returns Without Having To Trade
Understanding long and short positions helps you grasp how markets work, and if you are new to crypto or investing, it enables you to analyze trades made by others. Opening long and short positions should be done only by experienced traders who understand market dynamics and know how to do technical analysis.
FAQ
What is an example of a long position in crypto
A practical example involves purchasing 2 Bitcoin at $45,000 each, investing $90,000 total. If Bitcoin rises to $55,000, your position value increases to $110,000, generating a $20,000 profit.
When should you go long versus short
Going long versus short depends on your technical analysis and understanding of the market. Choosing between long and short should take into consideration narratives, market cycles, sentiment, fear and greed, but also FOMO, emotions, and negative developments.
Are long puts bullish or bearish?
Long puts represent bearish positions. When you buy (go long) a put option, you acquire the right to sell the underlying asset at a specific price.
