Summary: A long bet refers to a transaction by a trader who believes the market for a stock, commodity or currency is going to increase in value.
If you’re new to trading, one of the first terms you’ve heard are probably “long” and “short.” But, what does “going long” or “going short” actually mean? Is going long always bullish?
Here, you’ll find the answers along with real-world examples in different markets.
Definition of Going Long
Going long, or simply being long, refers to the buying of a financial instrument. Investors and traders can be long stocks, currencies, bonds, or derivative contracts such as options, futures, and CFDs.
A trader who holds a long position believes that the underlying asset will increase in value. This means that holding a long position represents a bullish bias in the markets.
The opposite of going long is going short. When a trader goes short, he short-sells the underlying asset in an anticipation of falling prices in the future. Therefore, going short is a bearish view of the markets.
“Long” as a Time Measurement
While being long most commonly refers to buying a stock, commodity, or currency, it can also be a measurement of time.
The term “long” has its roots in the equities market, where investors and traders invest in the stock market with the expectation that the price of the stock will rise with time. Usually, they don’t have a plan to sell their investments in the near future as stock prices tend to increase in the longer term.
In this regard, being long in the equities market usually means both to buy the underlying asset and to hold it for a longer period of time, following the investment practice “buy and hold.”
Different Meanings of Being Long
Being long can have different meanings in different financial markets.
Equities – When a trader goes long in the equities market, this means that the trader has bought the underlying asset in anticipation of higher prices in the future. The long position gives the trader the ownership rights on the bought stocks.
Options and futures – In the options and futures market, being long usually means to have ownership of the underlying asset or to be the holder of an option or futures contract. However, there are some important differences between being long a call option and being long a put option.
A trader who is long a call option believes that the underlying asset will increase in value. He’s the holder of the call option and has a bullish view on the market. However, a trader who is long a put option believes that the underlying asset will fall in value. While this trader is also in a long position and the holder of a put option, he has bearish views on the market. This shows that being long doesn’t necessarily mean that a trader or investor bets on higher prices.
In the futures market, businesses often go long in futures contracts to hedge against negative price fluctuations in the future.
CFDs – Traders can also go long in the widely-popular CFD contracts. A trader who’s long a CFD speculates that the underlying asset tracked by the CFD will increase in value in the future. However, in this case, the trader isn’t the owner of the underlying asset tracked by the CFD.
A trader or investor who believes that the stock market is entering a bull run could go long in a particular stock or a stock index. Upbeat company earnings or optimistic consumer confidence surveys could signal a new uptrend in the market, and market participants who join the ride with expectations of higher stock prices are said to have a long position in the market.
In the options market, a trader who believes the stock of Apple will rise in the future can go long a call option on AAPL. This call option gives the trader the right, but not the obligation to exercise the option at the expiry date. Option holders can also sell their options before the expiry date.
If a trader believes that the AAPL stock will fall in value, he could go long a put option that gives the trader the right to sell the underlying stocks at a higher price. Even though both of our traders have long positions, one in call options and one in put options, the former has a bullish view and the latter a bearish view of the markets.
Finally, if you believe that the EUR/USD pair will rise from 1.10 to 1.12 you can go long a CFD contract that tracks the EUR/USD pair. Once the exchange rate rises to 1.12, you can sell your CFD and profit on the difference between the entry price and the exit price. Remember that in the case of CFDs you don’t own the underlying asset but only speculate on future price movements.
Pros and Cons of Long Positions
- Long positions can help you catch and profit on rising prices in a bull market.
- Long positions in the options market give you the right, but not the obligation to exercise the contract.
- In the futures market, being long can help businesses to hedge against adverse price movements.
- If the price of the underlying asset falls, being long usually leads to losses (except if you’re long a put option.)
- Since equity prices usually fall much faster than they rise, being long in the longer-term can lead to unexpected volatility in unrealised profits.
- In the futures market, a business that uses futures contracts for hedging purposes reduces its risks, but also potential profit opportunities if the underlying asset moves in its favour. Futures contracts represent an obligation for the holder, no matter how the underlying asset performs.
Being long or short are perhaps the most common words you’ll hear in the trading community, so it’s a good start to know exactly what they mean.
While being long usually refers to buying an asset with expectations of higher prices, it can also be a time measurement (long in the equities market) or express a bearish view when being long put options.
Other Trading Basics
How big companies finance short-term cash flow.
Like bonds but without the coupon, instead, the APR is determined by the discount the agreements are entered into and the length of time to repayment.
For example, a blue chip company might borrow $9.95m dollars today and repay $10m in a month’s time.