📊 What do "long" and "short" mean in cryptocurrency trading?

When diving into the crypto world, newcomers encounter a multitude of specific terms related to various aspects of this industry. Among them, the concepts of "long" and "short" are commonly found and play an important role in trading. Let's clarify what they mean, how the corresponding trades work, and what benefits they bring to traders.

The Origins of the Terms "Short" and "Long"

The exact origin of these terms in the context of trading today is impossible to establish. However, one of the first public mentions is recorded in the publication The Merchant's Magazine, and Commercial Review for the first half of 1852.

As for the use of these words in trading, there is a version related to their literal meaning. A deal expecting the growth of an asset is often called a "long" ( in English. long — длинный ), as price increases usually occur slowly, and such a position is opened for a long term. In turn, an operation aimed at profiting from falling prices is called a "short" ( in English. short — короткий ), as it requires much less time to implement.

The Essence of "Short" and "Long" in Trading

"Long" and "short" are types of positions that traders open with the aim of profiting from the expected rise (long) or fall (short) in the value of an asset in the future.

A long position implies buying an asset at the current price, followed by selling it after the price rises. For example, if a trader is confident that a token worth $100 will soon increase to $150, they can buy it and wait for the target price. The profit in this case will be the difference between the buying and selling price.

A short position is opened if there are reasons to believe that an asset is overvalued and will decrease in price in the future. To profit from this, the trader borrows this instrument from the exchange and immediately sells it at the current price. Then, they wait for the quotes to decrease, buy back the same amount of the asset at a lower cost, and return it to the exchange.

For example, if a trader expects the price of Bitcoin to drop from $61 000 to $59 000, he can borrow one Bitcoin from the exchange and immediately sell it at the current price. When the quotes fall, he buys the same one Bitcoin for $59 000 and returns it to the exchange. The remaining $2000 ( minus the borrowing fee) constitutes the trader's profit.

Although the trading mechanism may seem complex, in practice it all happens automatically on trading platforms and is executed in just a few seconds. For the user, opening and closing positions is done with a simple click of the corresponding buttons in the trading interface.

Who are the "bulls" and "bears"

The terms "bulls" and "bears" are widely used both in trading and beyond. They are generally used to denote the main categories of market participants based on their position.

"Bulls" are traders who believe that the market as a whole or a specific asset will rise, so they open long positions, that is, they buy. In this way, they contribute to the increase in demand and the value of assets. The term itself comes from the idea that a bull "lifts" prices up with its horns.

"Bears," on the contrary, are market participants who expect a decline in prices. They open short positions by selling assets, thereby putting pressure on their value. Just like with "bulls," the name is associated with the idea that "bears" push prices down with their paws, causing them to decrease.

Based on these designations, the commonly used concepts of bull and bear markets in the crypto industry have formed. The former is characterized by an overall increase in prices, while the latter is marked by a decrease in quotes.

Hedging in Trading

Hedging is a risk management method in trading and investments. This strategy is also associated with "long" and "short," as it involves using opposite positions to minimize losses in the event of unexpected price changes.

For example, a trader buys one bitcoin in anticipation of a price increase, but allows for the possibility of a price drop if a certain event occurs. Not knowing for sure whether this event will happen, he can use hedging to reduce potential losses.

Depending on the market and trading strategy, various instruments can be used for hedging, such as buying cryptocurrencies with inverse correlation or a combination of a spot asset and a put option. However, the most popular and straightforward method of hedging is considered to be opening opposite positions.

Futures Trading and Its Role

Futures are derivative instruments that allow you to profit from changes in asset prices without the need to own them. It is futures contracts that provide the opportunity to open short and long positions, profiting from both rising and falling prices, which is not possible in the spot market.

In the crypto world, perpetual and settlement contracts are the most common. Perpetuality means there is no expiration date for the contract, allowing traders to hold positions for as long as they want and close them at any moment. Settlement ( or non-deliverable ) implies that upon completion of the transaction, the trader receives not the asset itself but the difference between its value at the time of opening and closing the position in a certain currency.

Liquidation and ways to avoid it

Liquidation is the forced closure of a trader's position that occurs when trading with borrowed funds. It usually happens during a sharp change in the asset's value when the margin (amount of collateral) is insufficient to secure the position.

In such situations, the Gate trading platform first sends the trader a margin call - a notification to deposit additional funds to maintain the position. If this is not done, the trade will be automatically closed when a certain price level is reached.

To avoid liquidation, it is important to develop risk management skills and be able to monitor multiple open positions.

Advantages and Disadvantages of "Shorts" and "Longs" in Trading

When using "short" and "long" in a trading strategy, it is important to consider:

• Long positions are more understandable, as they essentially work similarly to buying an asset on the spot market.
• Short positions have a more complex and often counterintuitive execution logic. Moreover, price declines usually happen faster and are less predictable than price increases.

Traders often use leverage to increase potential profits. However, it is important to remember that using borrowed funds not only can bring greater returns but also comes with additional risks and the need to constantly monitor the margin collateral (.

Conclusion

Depending on price forecasts, traders can use short )short( and long )long( positions to profit from declines or increases in quotes. Based on the held positions, market participants are classified as "bulls," expecting growth, or "bears," betting on a decline.

To open a "long" or "short", futures or other derivative instruments are usually used. They allow earning from speculations on the asset's price without the need to own it, and also open opportunities for additional earnings through the use of borrowed funds )leverage(. However, it should be remembered that their use increases not only potential income but also risks.