What are Long Positions and Short Positions?

Long and short positions are two types of orders that investors can place based on the movement of an asset's price. A long position is when you purchase an asset with an expectation that its value will increase in the future. You can sell the asset for a return if its value rises. Conversely, selling an asset you do not own with an expectation that its value will increase is known as a short position. If the asset's value declines, you may be able to gain from the difference between the sale and purchase price by purchasing it again at a reduced cost. To trade stocks, bonds, currencies, and other financial assets, long and short positions are frequently used. Keep reading to learn about the difference between long and short positions, examples, and more in detail.

Difference between Long Positions and Short Positions

The long and short positions differ on several parameters. Let us look at the distinction between long and short positions.

Examples of Long and Short Positions

Let’s now take a look at the examples of long positions and short positions. The practical examples of long positions vs short positions show how traders implement these strategies across different markets and asset classes. 

Long Position: Buy Low, Sell High

Assume that an Indian investor thinks Company A's stock is low and has excellent growth prospects. For a total of ₹10,000, the investor purchases 100 shares of Company X's stock for ₹ 100 per share. The investor's forecast becomes correct, and the share price of Company X climbs to ₹150. The investor then purchases the remaining 100 shares for a total of ₹15,000, or ₹150 per share, to repay the broker for the shares that were borrowed. 

Short Position: Sell High, Buy Low

Selling a stock at a high price and then purchasing it again at a lower price is a straightforward example of a short position. Assume that an investor feels Company B's stock is overpriced and may not grow further. The investor obtains a broker's 100 shares of Company B's stock, which he sells right away for ₹ 200 a share, earning ₹ 20,000.

As per the investor's prediction, Company B's stock price drops to ₹150 per share. The investor then buys back the 100 shares at ₹150 per share, spending a total of ₹15,000, and returns the borrowed shares to the broker. The investor sold the stock at a high price and then bought it again at a low one. He made a gain of ₹50 per share, or ₹5,000 total.  

Conclusion
Investors can rely on two strategies in the stock market; long and short positions. They can take long positions when they expect stock prices to increase and a short position if they anticipate a price decline. A long position's returns are obtained by purchasing at a lower price and selling at a higher one. Whereas, you gain from short positions by selling at a high price and buying back at a lower. Both strategies can be helpful depending on price movement of assets. A stock market app can aid by giving real-time data. However, consider your financial objectives and risk tolerance while investing.