Short and long position, what does it mean in trading?

In January 2021, GameStop stock made history by going from less than $5 to nearly $325 in just six months, causing an estimated $2 billion in losses for short sellers. This extraordinary event opened the eyes of millions of traders and investors (of all types) to the importance of understanding short and long positions in modern trading.

In fact, while going short allows you to profit in falling markets, long positions generate profits when prices rise. With over 17,000 markets available to trade, it is crucial to know that 74% of retail traders lose money when trading, primarily due to an inadequate understanding of short and long strategies.

Thus, the terms "long position" and "short position" are fundamental concepts that describe the opposing strategies used by traders to try to profit from asset price movements. Here is the definition and meaning of the different positions, with some useful and coherent examples to better understand.

The meaning of short and long

The first questions that a novice investor should ask are: what does it mean to go short or long? What are long or short positions?

Starting from the basics, we could say:

• going short means to sell;
• going long means to buy.

Going short (or "short selling") means selling an asset that you do not own, with the aim of buying it back in the future at a lower price. The profit comes from the difference between the initial selling price and the repurchase price. Short selling generally occurs by borrowing the asset from a broker, selling it on the market, and then buying it back later to return it to the broker.

Going long, on the other hand, means buying an asset with the expectation that its price will increase over time. In essence, the trader buys low and then sells high, generating a profit from the difference between the purchase price and the sale price.

Short and long position: here’s how it’s used in trading

Taking the Forex market as an example, going long on Eur/Usd means buying Euros by selling US Dollars, aiming for an appreciation (increase in value) of the single currency.

In this case, the expectation is for an increase in the value of the exchange rate. Therefore, there will be a bullish view of the market.

Going short on Eur/Usd means selling Euros by purchasing US Dollars, thus aiming for an appreciation of the greenback against the single currency. In this case, the expectation is for a decrease in the value of the exchange rate.

A position will thus be opened that aims for a decline in the price. The trader’s vision of the market will be bearish.

Here, in a very simplified way, is the practical application of "short and long position":

Going long or short: some practical examples

To better understand how long and short positions work in trading, it might be useful to delve into some more specific cases.

Trading with a long position

Let’s imagine that a trader is looking at the shares of the imaginary technology company TechFuture Inc., which in 2025 recently announced a major innovation in the field of artificial intelligence. Following this news, the trader expects the share price to increase.

• Current price: €100 per share
• Trader’s decision: Buys 100 shares of TechFuture Inc.
• Total investment: 100 shares × €100 = €10,000

After two weeks, the market reacts positively to the news and the stock rises to €120.

• Stock value after increase: 100 shares × €120 = €12,000
• Realized profit: €12,000 - €10,000 = €2,000
  In this case, the trader has made 20% thanks to the long position.

What about the risks to consider? The main risk of a long position is that the asset price will decrease instead of increasing. For example, if TechFuture Inc. stock fell to $90, the trader would have suffered a loss of $1,000. However, in a long stock position (not a derivative), the maximum loss is limited to the invested capital (in this case, $10,000).

Short Position Trading

Suppose a trader expects the stock price of the imaginary automobile company GreenMotors Ltd. to decline due to disappointing financial results announced for the first quarter of 2025.

• Current Price: €150 per share
• Trader Decision: Short sells 100 borrowed shares
• Initial Entry: 100 shares × €150 = €15,000

After a few days, the market reacts negatively to the financial results, causing the stock price to fall to €120.

• Buyback Cost: 100 shares × €120 = €12,000
• Realized Profit: €15,000 - €12,000 = €3,000
  The trader has therefore made €3,000 on the short position.

It should be noted that the risk of a short position is theoretically unlimited. If the price of GreenMotors Ltd. shares had risen instead of falling, say to €180, the trader would have had to buy the shares back at a higher price, incurring a loss of €3,000.

In extreme cases, if the price of a share skyrockets, losses could exceed the capital initially anticipated, leading to a margin call by the broker, which would require additional funds to cover the losses.

The main differences between short and long positions

To summarize in a schematic way short and long in trading, we could refer to the following table regarding the key points.

Original article published on Money.it Italy. Original title: Posizione short e long, cosa significa nel trading?