Long and short trades indicate whether a trader believes the value of a cryptocurrency will either rise or decline.
While these terms may be confusing for a user who is fairly new to trading, it is a fundamental term used in trading and it is relatively simple to understand. These terms are also used in the stock market which acts with the same principle as cryptocurrencies. We will take a deep dive into these concepts and how you can start making better trading decisions.
How does long and short trades work
To make a profit, the price point will move in one of two directions: long or short. Long positions imply that the trader believes the cryptocurrency’s worth has potential for growth and that the price will rise in due course. In this scenario, the traders “go long”, or buy the cryptocurrency. Short simply indicates the opposite, where the trader believes the value will fall and sells the assets by “shorting” it.
Market conditions are critical when a trader determines whether to go long or short. Traders normally make long calls in a bullish market, while short calls are made in a bearish market. This is owing to the fact that in a bullish market, prices rise, and in a bearish market, prices fall.
When should you make a long position
Depending on the time frame you are working with, you may be interested in going long when you believe the price of a cryptocurrency is about to move up. This could be based on various factors such as the lucrative project partnerships or any upgrades to the overall asset. Lately, Many commercial enterprises have recently begun to accept bitcoin as a form of payment, indicating that the asset is becoming more valuable.
Many traders purchase Bitcoin and “go long” as its value continues to outperform any other cryptocurrency traded globally. However, a trader should also take proactive approaches by undertaking fundamental or technical analysis to support their decisions. Many traders purchase Bitcoin and “go long” as its value continues to outperform any other cryptocurrency traded globally.
When should you make a short position
A trader can make short positions when they anticipate the price of the cryptocurrency will fall. As mentioned above, you should always backup your decisions by performing market analysis.
There are few key reasons why traders will short-sell, primarily when the market is saturated and headed towards a downward trend. Traders open short positions and stand a chance to make huge profits if their estimation is correct. Another purpose is to hedge risk; if a trader experiences significant losses after starting a long position, they might short assets to lessen or even eliminate their losses.
Managing risk is always optimal and proactive in countering uncertainty, whether you open short or long positions. The stop-loss and take-profit functions in SnapEx allow you to define certain thresholds to prevent the price from crossing price points that are at risky levels.