The stock market has its own terminology, and long and short are terms you’ll hear frequently. Here’s what these stock market terms mean, along with explanations and examples of each. These same terms are also used in the futures and forex market.
Stock Market Terms: Long
Long means buy or bought. If someone says “I’m long WXYZ stock” it means that person owns (they bought) shares in WXYZ. If someones says “I’m going long WXYZ at $14” it means they intend to buy WXYZ stock at $14. In this case they don’t own it yet, but they plan to.
You buy or “go long” stocks you believe will rise in value. When someone says they are long it usually infers that they believe the stock (or other asset) will rise in value.
When you are long (own shares), to exit the position you sell the shares. For example, if you go long 100 shares at $10, you need to sell them at some point to collect your profit. When you sell the 100 shares you are “flat.” Flat means you have no position–you are neither long or short.
Selling is flattening or reducing a long position, which is a bit different than going short…
Stock Market Terms: Short or Short Selling
If someone says “I am short/shorting XYZ stock” it means that person sold XYZ shares without owning them. If someone says “I am going short XYZ at $14” it means they intend to short sell XYZ at $14.
You short or short sell stocks you believe will fall in value. When someone says they are going short it usually infers that they believe the stock (or other asset) will fall in value.
Further Explanation of Short Positions
The question is, how do you sell something you don’t own? Anecdotes don’t really work here. Just understand that it is something the financial markets allow you to do.
Say a stock is trading at $50. Based on your analysis you think it could drop to $30. You can sell the stock at $50, and if it drops as expected you will reap a profit…here’s how.
Assume you sell 100 shares of ZYZ stock at $50. In your trading account it will show a negative share position: -100. Just like any other position, in order to realize your profit/loss you need to bring that share balance to zero. At some point you need to buy (+) 100 shares to bring yourself back to flat and realize the loss or profit on your position.
Since you sold 100 shares at $50 your account is credited with $50 x 100 shares = $5000. Don’t get too excited though, that’s not your money yet.
Assume the stock does drop to $30 as expected. You buy back the 100 shares, but because the shares are now only $30, it only costs you $30 x 100 = $3000. Since you were originally credited with $5000, and spent $3000 to close the position, your profit is $2000. If the stock rises though you’ll be in a losing position. If the stock goes to $60, it now costs $6000 to buy 100 shares, but you were only credited with $5000….you are losing $1000.
For more on how short selling works, see the U.S. Securities and Exchange Commission’s Short Sales page.
Long and Short – Final Word
While most investors and traders think “buy low sell high,” you can also “sell high buy low.” The order doesn’t matter.
If you bought (went long) 100 shares of stock at $30 and sold at $50 you make $2000. You can also make $2000 by selling first at $50 and buying later at $30.
Short selling allows traders to make money when prices are falling, and going long allows them to make money in rising markets.
For more day trading terms, check out Basic Day Trading Terms.