Going long and going short

01

Long: you own it

Going long is the ordinary way: you buy something and own it. If its price rises you gain, and if it falls you lose.

The most a long position can lose is what was paid for it, because a price can't go below zero.

02

Short: you borrowed it

Going short is a way to gain when a price falls. The trader borrows shares from a broker and sells them right away. Later they buy the same number of shares back and return them.

If the price fell in between, buying back costs less than the sale brought in, and the difference is the gain. If the price rose, buying back costs more, and the difference is the loss.

03

An example

A trader borrows one share and sells it for $100. If the price drops to $70, they buy it back for $70, return it, and keep $30, minus fees. If the price climbs to $150 instead, buying it back costs $150, and they have lost $50.

04

Why shorting is riskier

A price can only fall to zero, but there is no ceiling on how high it can rise. So a short position's possible loss has no limit.

Shorting also costs money while it lasts: the broker charges a fee for the borrowed shares, and the trader owes any dividends paid on them. It needs a margin account, where the broker lends against the money in the account and can demand more, or close the position itself, when the trade goes badly. That demand is called a margin call.

When a heavily shorted share starts rising, short sellers rush to buy it back, and their buying pushes the price up further. That is a short squeeze.

05

The same words in crypto

Crypto traders use long and short too, usually for contracts that bet on a coin's price with borrowed money rather than for the coin itself. The risks are the same and often larger, because those contracts multiply every move.

06

On Viru

Everything on Viru is long: what you buy, you own, with your own money. Viru has no shorting, no borrowing and no contracts that multiply price moves.