If you are familiar with or have partaken in foreign exchange (FOREX), then the long and short positions would ring a bell. Positioning in FOREX, whether long or short gives an insight into the amount of a particular currency owned by a person or an entity who in turn has a direction to the movement of currencies against currencies. This implies that traders pick positions in different currency pairs so that if the prices go high, they could go long. In the FOREX business, which has been the usual virtual global FIAT trade system, it is expedient to understand the long and short positions. We can then channel this knowledge into the headlines of cryptocurrency.
The Long & Short
Talking about exchanges, whether it is the FIAT exchanges or the cryptocurrency exchange, it often involves monitoring a particular currency pair of choice, acquiring them when there is a low and selling them off when there is a high. With this understanding, having a long or short position implies that one is wagering on a currency pair to appreciate or depreciate. Going long impacts one’s assets with a positive investment balance, and the trader anticipates the assets will appreciate. However, when the trader has a negative investment balance in an asset for going short, they anticipate a depreciation so that it can be recovered at a lowered value rate in the nearest future. For crypto traders and investors, this reflects their belief at a particular point in time in the tendency for a given cryptocurrency to appreciate or depreciate.
We have seen Bitcoin, Ethereum, and the likes appreciate and depreciate from time to time. This price fluctuation has affected those in possession of the coins either positively or negatively. Look at those who acquire certain crypto to their wallets through exchanges and those who would have acquired from crypto casinos from the gains of wagering. If, at the end of 2019, one had projected that the value of 1BTC, which was about $20,000, would rise to twice its value by mid-2020, that would have been a great gain in comparing prices.
But due to the volatility of the cryptocurrencies, 1BTC is currently $12,000 or thereabout. “For newcomers in cryptocurrency, if the idea of long and short is a bit explicit from the insight in FOREX, then it is time to take the bull by the horn and read further.” Buying cryptocurrency is somewhat similar to using your money to buy stock. In the same way, your stock has a value at the time of purchase, which may increase and decrease at intervals; crypto also has a value. In light of this, acquired cryptocurrencies are sold when their values have been appreciated.
Go the long position with your cryptocurrency
Exchanges and Brokers ensure that cryptocurrency is readily available for everyone. So any investor in the crypto space has access to any of Bitcoin (BTC), Ripple(XRP), Ethereum (ETH) or an altcoin. However, the aim of buying and storing the crypto in your wallet would majorly be to see it grow in value or appreciate tremendously. So whenever you buy cryptocurrency from a broker and anticipate it would grow in value for you to sell later and make a profit, it is known as going long. Just to reiterate, the impact of going long is that the investment balance is positive for the acquired cryptocurrency (asset).
At the same time, the investor continues to anticipate an appreciation in the value. “The direct opposite of going the long position is short.” However, unlike FOREX pairs, wherein the long-term target is indefinite, cryptocurrency investment is like purchasing shares as it is normally traded against the FIAT and is very volatile. The more reason investors like to buy and hodl their coin and watch it increase in value.
Going the short position
Interestingly, it is also possible to make great gains while the coin’s value is falling. Within the crypto space, it is referred to as going short. Investors may decide to go short when there is a dump or the cryptocurrencies decline. But they should understand the market, have a concrete analysis of the situation, and be sure the price cannot break a resistance level and start departing from it.
To be more explicit, the investors or holders of a coin would sell the underlying cryptocurrencies in their possession with the foresight that it will drastically drop in value in the nearest future. Then they will, in turn, buy back the same currency at a much lower rate. And, of course, the difference between a higher selling price and a lower buying price value is profit for the trader. However, a trader can be calculative and analytical in the crypto space. However, this can be unpredictable since cryptocurrencies are still gaining ground, and their volatility can not be overemphasised. Whether you go long or short, take note of the factors that affect the market.
Several exchanges offer traders the opportunity to go long or short, do margin trading, or even predict these cryptocurrencies’ rise/fall tendencies, like BitMEX and ByBit. There is always a play of chance going short or long. Going short can be risky if, for instance, after selling all the coins in your wallet, with the anticipation that they would fall in price and ends up sprouting, similarly, a trader can decide to go long by buying a lot of these cryptocurrencies with the hope of seeing it sprout.
You end up seeing it decline drastically. However, it is possible to go either way on cryptocurrencies without buying or selling them. It is just as simple as stumbling on derivative exchanges that offer contracts for differences and other derivative products. So, these derivative products can be traded, thereby gaining exposure to cryptocurrencies via long and short positions without any physical interactions.