Easy
Long position and short position in crypto trading: understand, use and enjoy price movements
In trading , two fundamental concepts allow traders to make profits both when the market rises and when it drops: long position and short position . Understanding the difference between a long position and a short position, knowing when and how to use them, and knowing the platforms where traders can take these positions is essential to embark on crypto trading, whether you are a beginner or you want to deepen your trading strategies.
Table of contents
What is a long position?
A long position is to buy an asset - for example Bitcoin or Ethereum Ethereum thinking that its value will increase. If the price increases, you can sell the asset later at a higher price and make a profit . This strategy is particularly popular during the bullish markets , when the general trend is up. Taking a long position means that you can make a profit when the value of an asset increases compared to the initial purchase price: it is the basis of traditional trading and the most intuitive strategy for many beginners.
- You buy the assets at the current market price.
- You keep the assets hoping that its price will increase over time.
- When the price has increased enough, you sell to make a profit.
The long position is therefore ideal if you think that the value of an asset will increase. This strategy can be used both in the short term and in the long term (investment).
In summary, the long position is to buy an asset which we think that the value of an asset increases, with the hope of selling it later at a higher price to make a profit.
What is a short position?
The short position (or shorts ) is the opposite: it makes it possible to make a profit when the price of an asset drops. Taking a short position in trading is to sell an active that you do not have, in the hope of buying it later at a lower price. This strategy, also called updated sales , is widely used by hedge funds trading platforms .
- You "borrow" an asset (for example Bitcoin) via the platform.
- You sell the assets immediately at the current market price.
- If the price drops, you buy the assets at a lower price to return it, and you pocket the difference as a profit .
If you think that the value of an asset will decrease, taking a short position can be a relevant strategy.
The short position can be used to speculate on price movements without having the underlying asset, or to protect yourself against the drop in an existing portfolio.
Difference between a long position and a short position
| Long position | Short position |
|---|---|
| Consists in buying an asset by thinking that its value will increase. | Consists in selling an active borrowed by thinking that its value will drop. |
| Profit if the price increases. | Profit if the price drops. |
| Loss if the price drops. | Loss if the price increases. |
| Privileged strategy in the bull market . | Privileged strategy in the lower market. |
The difference between a long position and a short position: the first is to buy the assets hoping that the price will increase, the second to sell the assets hoping that the price will drop. Profits or losses depend directly on the management taken by the financial markets.
How do long and short positions in crypto trading work?
Take a long position
- You consist of buying cryptocurrency (for example Bitcoin, ETH, Sol) if you think the price will increase.
- You are waiting for the price to go up.
- You sell at a higher price to make a profit .
Take a short position
- You sell a cryptocurrency that you do not have, by borrowing it via the platform.
- You are waiting for the price to drop.
- You buy the assets at a lower price to return it to the platform, and the difference between the sale price and the buyout price constitutes your profit .
Traders can use a lever effect to amplify gains (and potential losses): for example, a 10x lever allows exposure to an asset by 10, but also increases the risks associated with the long or short position.
Concrete example: Long position and short position on Bitcoin
- You open a long position on Bitcoin at $ 30,000.
- If the price of Bitcoin rises to $ 35,000, you sell and make a profit of $ 5,000 per Bitcoin.
- Conversely, you open a short position on Bitcoin at $ 30,000.
- The price drops to $ 25,000: you buy at this price, and profit is $ 5,000 per Bitcoin.
If the price evolves in the opposite direction, you are suffering from losses. Potential losses are limited to the starting bet on a long position, but they can be unlimited if the price increases on a short position.
Where to take long and short positions in Crypto trading?
Drift : a decentralized trading platform on Solana
Drift perpetual trading platform Solana , renowned for its low costs and speed. To take a short or long position on Drift :
- Connect your decentralized wallet.
- PlaceUSDC.
- Choose the cryptocurrency pair on which you want to trade.
- Open a or short position with a lever effect up to 10x or more depending on the pairs.
Drift offers more than 50 pairs of cryptos, including Bitcoin, ETH, Sol and many Solana . Trading costs are competitive: –0.01 % for makers and 0.1 % for Takers, with discounts via the fuel program.
You can also access a prediction market (BET) and return options via liquidity or vaults.
The execution of orders is rapid and the management of positions is fully decentralized.
Free guide to master a decentralized portfolio
To learn how to use a decentralized wallet, we offer our free guide, step by step, supporting screenshots.
- Learn to manage your assets without intermediary.
- Transactions via a decentralized wallet
- Explore the DEFI , staking , NFT and optimize your investment strategies.
We invite you to download the guide for free to learn how to use a decentralized portfolio below:
dYdX : the reference DEX for Shorter Bitcoin and Cryptos
dYdX is the most popular decentralized platform for trading perpetual contracts. Initially on Ethereum , it now works on its own blockchain ( dYdX Chain) based on Cosmos. More than 200 perpetual markets are active, with a lever effect up to 50x on the main pairs of cryptocurrency.
Trading costs are competitive: 0.5 % max for takers, 0.1 % for makers, with discounts via staking DYDX token . The execution of orders is rapid, the purpose almost instantaneous and the order book is decentralized.
You keep total control over your funds via your portfolio, with security ensured by a network of independent validators.
Long and short trading strategies in crypto
Long and short positions are at the heart of many advanced trading strategies. The Hedge Funds, in particular, frequently use what is called a neutral strategy, which consists in balancing long and short positions on different assets. This approach allows them to protect themselves from unforeseen market movements: if the market rises or decreases sharply, the loss on a position can be compensated by the gain on the other. Thus, they reduce their exposure to directional risk and can generate profits even when the market evolves laterally or uncertainly.
For hedge funds, this neutral strategy has a major advantage:
-
Long and short positions are at the heart of many advanced strategies. The hedge funds often use a neutral strategy, which consists in balancing long and short positions to protect themselves from unforeseen market fluctuations. This approach allows them to limit potential losses and generate stable profits, regardless of market management.
The Hedge Funds take a fixed management committee, regardless of the results, as well as a performance committee only in the event of earnings. By targeting regular profits through this strategy, they maximize their income via these commissions. Even if the profits are not constant, the management committee remains acquired, guaranteeing a minimum income for the fund.
Use of leverage
The lever effect increases exposure to the market without mobilizing more capital. However, it amplifies both profits and potential losses. risk management tools : Stop-loss, adapted position size, and never invest more than they can afford to lose.
Risk management: stop-loss and stop-loss order
The Stop-Loss order is a tool to limit potential losses during trading, whether you are in a long position or in a short position. This is an automatic order that ends your position if the price of the asset reaches a level that you have defined in advance. This allows you to control the risk and prevent small losses from being transformed into significant losses.
For a long position, the stop-loss is placed below your purchase price: if the price drops and reaches this threshold, the position is sold automatically to limit the loss.
For a short position, the stop-loss is placed above your entry price: if the price increases and reaches this level, the platform automatically bought the asset to close the position, thus limiting your losses.
Using a stop-loss is therefore essential for effective risk management, regardless of the meaning of your position on the market.
When to take a long or short position?
The choice between a long or short position depends on your market analysis and your expectations on price movements :
- If you think that the value of an asset will increase, take a long position .
- If you think that the value of an asset will drop, take a short position .
Traders must analyze trends, volumes and technical signals to determine which strategy to adopt. Long positions are privileged in the bull market , while short positions are used to take advantage of the correction or Bear Market phases.
Risks associated with long and short positions
The trading of long and short positions includes risks:
- On a long position , you lose if the price drops instead of going up.
- On a short position , losses can be unlimited if the price increases instead of lowering.
- The use of the lever effect can amplify potential losses.
Risk management is therefore essential: use stop-loss, only bet a small part of your capital on each transaction , and diversify your assets .
FAQ on long and short positions in Crypto trading
What is a long position?
A long position is to buy an asset by thinking that its value will increase, to resell it later at a higher price and make a profit .
What is a short position in trading?
The short position consists in selling an borrowed asset, betting on the drop in its price, then buying at a lower price to make a profit .
Can we make a profit when the markets drop?
Yes, taking a short position , it is possible to make a profit when the price drops.
What are the risks associated with long and short positions?
The losses are limited to the starting bet on a long position , but unlimited if the price increases on a short position . It is therefore crucial to limit potential losses with stop-loss and good risk management .
What strategy to choose: long or short position?
It all depends on your analysis: Take a long position if you think that the value of an asset will increase, a short position if you think it will drop. Traders can use both to speculate on upward and downward price movements
Conclusion: Mastering long and short positions to succeed in Crypto trading
Understanding and knowing how to use long and short positions is essential for any crypto trader wishing to take advantage of price movements on the financial markets.
Whether you are a beginner or experienced, the key to success lies in the in -depth understanding of the mechanisms of each strategy, the risk management and the choice of reliable platforms to take long or short positions in the trading of cryptocurrencies.
Investments in cryptocurrencies are risky. Crypternon could not be held responsible, directly or indirectly, for any damage or loss caused following the use of a property or service put forward in this article. Readers must do their own research before undertaking any action and investing only within the limits of their financial capacities. Past performance does not guarantee future results. This article does not constitute an investment advice.
Certain links of this article are sponsorship links, which means that if you buy a product or you register via these links, we will collect a commission on the part of the sponsored company. These commissions do not train any additional cost for you as a user and certain sponsorships allow you to access promotions.
AMF recommendations. There is no guaranteed high yield, a product with high performance potential implies a high risk. This risk taking must be in line with your project, your investment horizon and your ability to lose part of this savings. Do not invest if you are not ready to lose all or part of your capital.
All our articles are subject to a rigorous verification of the facts. Each key information is verified manually from reliable and recognized sources. When we cite a source, the link is systematically integrated into the text and highlighted by a different color, in order to guarantee transparency and allow the reader to consult the original documents directly.
To go further, read our pages legal notices , privacy policy and general conditions of use .
Noah
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
