Beginners_Guide_to_Long_and_Short_in_Futures_Trading
Section 1: Bearish Outlook & Short Selling
Bearish outlook: You anticipate a market decline.
Short selling: Selling after predicting a price drop. In spot markets, short selling is unavailable, but you can short via futures or margin trading.
Short position: Investors view the current price as excessively high and expect a market downturn. They sell coins at the current price and plan to repurchase them later at a lower price, profiting from the difference. This process is known as short selling.
Example: A coin is priced at $10. You predict a price drop but only have $2 or $3—insufficient to buy one coin.
You can use $2 as collateral (margin) to borrow one coin from a third party. You sell it immediately at $10, but cannot withdraw the $10 yet because you owe the coin.
If the price falls to $5, you use $5 from your $10 cash to buy one coin and return it to the lender (e.g., the exchange). The remaining $5 is your profit (excluding interest). This demonstrates profiting from shorting.
However, if the price rises instead of falling, your margin may incur losses. If losses exceed your margin, it triggers liquidation, potentially resulting in total capital loss.
Section 2: Bullish Outlook & Going Long
Bullish outlook: You expect a market rise.
Going long: In spot markets, buying a coin directly constitutes going long. You profit by buying low and selling high.
Long position: Optimistic investors purchase coins now, anticipating price increases, then sell at higher prices for profit. This buy-low-sell-high approach is termed going long.
Example: SOL is priced at $140. You are bullish, so you buy at $140. Later, SOL rises to $280. You sell and earn $140 in profit. This illustrates going long.
In reality, "long" and "short" refer not to individuals but to groups sharing similar market expectations.
Here’s a summary image for reference:
Summary
- Going Long: Expecting price increases. Buy low, sell high for profit.
- Short Selling: Expecting price drops. Borrow and sell high, buy back low, return and profit.
- Bulls: Optimistic investors.
- Bears: Pessimistic investors.
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