Going long or going short means taking a position in an asset and expecting it to go up or down. These strategies are fundamental to every trader who is experienced and uses existing knowledge to time the market.
- Key takeaways
- What is a long position in crypto
- What is a short position in crypto
- What are long and short positions in crypto trading
- What traders usually get wrong about short trading
- What brokers are there for long and short trading in crypto
- Common mistakes when going long vs going short in crypto
- Maximize Your Returns Without Having To Trade
- FAQ
Key takeaways
- Going long or short means a trader expects the price of a token to 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.
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 chooses to fall instead of rise. 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.
Market volatility in crypto creates short-term losses even though, in the long term, the token will continue to increase. Another risk of a long position is being too emotional when trading.
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.
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, margin interest, and potential dividend payments, 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, which are regulated to help protect initial capital. 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.
For regular investors, Yieldfund removes the need to understand trading mechanisms. As a quantitative trading company, Yieldfund trades the top 10 cryptocurrencies by market capitalization using high-frequency trading algorithms that automate the process. Investors can get exposure to the crypto market and earn consistent returns of up to 60% per year without having to trade themselves.
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.
What is short and long in crypto
Long positions involve owning cryptocurrency with expectations of price appreciation. Short positions involve selling borrowed cryptocurrency with expectations of a price decline.
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.
