Bitcoin

What are Long and Short Positions in Crypto Investing

By PhoenixDev | CryptoWorld - CW | 13 Aug 2020


What is a long position?

Normally, when we buy cryptocurrencies (for example, Bitcoin), we do so in the hope that their value will rise and, thus, after a certain time we can sell them and make money.

This is what is called a long position, that is, we invest money in cryptocurrencies waiting for the price to rise. This in the usual way of operating in the crypto market.

What is a short position?

Trading a short position as opposed to trading a long position. That is, what we will be looking for is for the value of cryptocurrencies to fall. But how can we make money if the value of the cryptocurrencies in which we have invested goes down?

  • This way of operating is somewhat more elaborate. The process is the following:
  • The person who wants to invest borrows those cryptocurrencies that he thinks their value will go down.
  • Next, this same investor takes said cryptocurrencies and sells them in the market, and waits until their value goes down.
  • When cryptocurrencies go down to the default value. At that moment is when the investor buy back the sold coins, but at a lower price than he sold them, and returns them to the lender.

The difference between the price at which you sold the coins and then bought them is the profit you make.

Risks

Both cases present, as in any investment, risks:

  • In the case of long positions, if the value of cryptocurrencies goes down, we will lose money.
  • In the case of short positions, it is the opposite, if after borrowing and then selling cryptocurrencies, these increase in value, to return them we must buy them before at a higher price at which we sold them, so we will also lose money.

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PhoenixDev
PhoenixDev

Interested on Blockchain and Cryptocurrencies.


CryptoWorld - CW
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