A Beginners Guide to Long and Short in Futures Trading
1. Bearish Outlook & Short Selling
Bearish outlook: You anticipate that the market will decline.
Short selling: Selling assets after predicting a price decrease. While spot markets don't allow short selling, you can execute it through futures or margin trading.
Short position: Investors view the current price as excessively high and expect a downturn. They sell coins at the present price and aim to repurchase them later at a lower level—profiting from the difference. This strategy is termed short selling.
Example: A coin trades at $10. You forecast a drop but only have $2 or $3—insufficient to buy a full coin.
You use $2 as collateral (margin) to borrow one coin from a third party. You sell it immediately at $10, but cannot access the funds yet because you owe the coin.
If the price falls to $5, you spend $5 from your cash to buy one coin and return it to the lender (e.g., the exchange). The remaining $5 becomes your profit (excluding interest). This illustrates profiting from a short position.
However, if the price rises instead of falling, your margin may incur losses. If losses surpass your margin, it triggers liquidation, potentially wiping out your capital.
2. Bullish Outlook & Going Long
Bullish outlook: You expect the market to increase.
Going long: In spot markets, this simply involves purchasing a coin. You buy at a low price and sell high to capture the difference.
Long position: Optimistic investors buy coins now, anticipating higher prices, then sell later for profit. This buy-low-sell-high approach is known as going long.
Example: SOL is priced at $140. You're bullish, so you buy at $140. Later, SOL climbs to $280. You sell and earn $140 profit. That's how going long works.
In reality, "long" and "short" refer to groups sharing similar market expectations, not specific individuals.
Here’s a summary image for reference:
Summary
- Going Long: Expecting price increases. Buy low, sell high for gains.
- Short Selling: Anticipating price drops. Borrow and sell high, repurchase low, return, and profit.
- Bulls: Investors with positive outlooks.
- Bears: Investors with negative outlooks.
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