Newcomers in the daytrader business inevitably meet the two terms "long" and "short". However, there are always misunderstandings about these terms, which is why there is an exact explanation below.
Long: What is it and what is it used for?
The term "long" basically means only that a position has been be explanation bought and that the buyer is now the owner of this position. The term is often mistakenly mistaken for the fact that one sets on rising prices. This is wrong, because in fact an investor can also be a "long try this web-site that put" and is thus based on falling prices.
Using examples, the definition is simplified:
- Trader A says, "I am Long 200 shares of Google shares."
- Simply put: "I bought 200 Google shares and I hope for a rising price."
- Trader B says, "I'm Long 10 5,000 DAX Puts."
- Simply put: "I bought 10 contracts my company from DAX-Puts with a strike of 5,000 points and hope for falling prices."
Short: What is it and what is it used for?
Who is "short" who has sold a position. Thus, he is also a vendor of a position that he does not have. The term "short", on the other hand, does not this link year mean that falling prices are set. As already described for the term "long", an investor can also be a "short call", so that one is a short-seller of a call position and speculates on rising prices.
Again, the definition of definitions can be simplified by examples:
- Trader A says, "I am Short 200 shares of Google shares."
- Simply put, "I have sold 500 Google shares your see that I do not own and hope for falling prices."
- Trader B says, "I'm Short 10 5,000 DAX Puts."
- Simply put: "I have sold 10 contracts DAX-Puts with a strike of 5,000 points and hope for rising prices."
What are the risks of the long and short?
Investors are hoping that the prices will fall from the vacant positions so that they can be repurchased at a favorable price. The profit is simply calculated from the difference between the selling price and the new purchase price. In this context, the term "flat" your my site also emerges. That is, the sold position has now been repurchased at the time of the smoothness.
In principle, a vacant position is at a high risk, because if the price rises sharply, the short investor must buy back the already sold position again. Accordingly, a high loss is obtained. A margin (security deposit) must be deposited on the account of the respective broker. This is then used to cover the "haggard" position.
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As a rule, the margin is always calculated new or current, which can lead to high losses for the sold position how visit their website and strongly rising prices. These losses may even be higher than the current account balance so the broker will require additional security from the investor.
A counterposition is entered to cover a position that has been hoarded. This reduces the risk to a certain amount. Without such coverage, the short sale is highly speculative. This risk must be avoided.