If you are familiar or have partaken in foreign exchange (FOREX), then the term 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 position, and 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 of 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 either to appreciate or depreciate in value. Going long impacts one’s asset with a positive investment balance, and the trader anticipates the assets appreciates. 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 is a reflection of their belief at a particular point in time in the tendency for a given cryptocurrency to appreciate or depreciate in value.
We have seen the Bitcoin, Ethereum and the likes appreciate and depreciate in value from time to time and this fluctuation in prices have affected those in possession of the coins either positively or negatively. Taking a 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 as at the end of 2019 one had projected that the value of 1BTC which was about $20,000 would rise to twice it value by mid 2020, that would have been a great gain in comparing price. But due to the volatility of the cryptocurrencies, 1BTC is currently $12,000 or there about.
“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 you money to buy stock. The same way your stock has a value as at the time of purchase, which may increase and decrease at intervals, a crypto also has a value. In the light of this, acquired cryptocurrency are been sold when the values have appreciated.
Go the long Position with your cryptocurrency
Exchanges and Brokers ensures 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 that it would grow in value for you to sell at a later time and make 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); while the investor continues to anticipate an appreciation in the value.
“The direct opposite of going the long position is the short position. ”
However, unlike FOREX pairs wherein long-term target are indefinite, cryptocurrencies investment is like purchasing a shares as it is normally traded against the FIAT,and it 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 very possible to make great gain while the value of the coin is falling. Within the crypto space it is referred to as going short.
When there is a dump or the cryptocurrencies decline in value, an investor may decide to go short. 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 a 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 more lower rate. And of course the difference between a higher selling price and a lower buying price value is profit for the trader.
In the crypto space however, a trader can be calculative and analytical but this can be a bit unpredictable owing to the fact that cryptocurrencies are still just gaining grounds, and their volatility can not be overemphasized. Whether you decide to go long or short take note of the factors that affect the market.
Quite a number of exchanges offers traders the opportunity to go long or short, do a margin trading or even predict the rise/fall tendencies of this cryptocurrencies; like BitMEX and ByBit.
There is always a play of chance in going short or long. Going short can be risky, if for instance after selling all the coins in your wallet, with the anticipation that it would fall in price and it ends up sprouting, similarly a trader can decide to go long by buying a lot of this cryptocurrencies with the hope of seeing it sprout and you end up seeing it decline drastically.
Although it is very possible to go either ways on cryptocurrencies without having to buy or sell it. It is just as simple as stumbling on derivative exchanges that offers contracts for differences and other derivative products. So in turn these derivative products can be traded thereby gaining exposure to cryptocurrencies via long and short positions without any physical interactions.