The world of trading has its own terminology, and long and short are terms you’ll hear frequently. Here’s the definition of these words, along with explanations and examples of each. These same terms are also used in the stock, futures and forex market.
Trading Terms: “Long” or “Going 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 (or any other asset) 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…
Trading Terms: “Short” or “Short Selling”
Goigng short means to sell without first owning. It is also referred to as short selling or shorting.
You short or short sell assets you believe will fall in value. When someone says they are going short it usually infers that they believe the price of an 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 without owning it, and if it drops as expected you will reap a profit. Here’s how…
Assume you sell 100 shares of ZYZ stock at $50, without owning it or having bought it first. 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 do that.
Since you sold 100 shares at $50 your account is credited with $50 x 100 shares = $5,000. 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 = $3,000. Since you were originally credited with $5,000, and spent $3,000 to close the position, your profit is $2,000. If the stock rises though you’ll be in a losing position. If the stock goes to $60, it now costs $6,000 to buy 100 shares, but you were only credited with $5,000….you are losing $1,000.
For more on how short selling works, see the U.S. Securities and Exchange Commission’s Short Sales page.
Trading Terms: Bullish and Bearish
Two words related to long and short are “bullish” and “bearish.” These words also indicate which direction the price of an asset is moving, or which direction a trader thinks it will move.
The term bull or bullish comes from the animal, attacking with an upward thrust. Therefore, “bull” means upward trend or price direction. If someone is a bull or bullish, they think prices will rise. If you hear the term “bull market,” that means prices are rising.
A bear attacks by swiping down with its paw. Therefore, “bear” means a downward trend or price direction. A bear or bearish person thinks prices will fall. A “bear market” is when prices are falling.
Final Word on Long and Short
Here’s a quick review of what these trading terms mean.
- Long: to buy or own an asset.
- Short: to sell an asset without owning it first.
- Bull: rising prices, or a person who believes prices will rise.
- Bear: falling prices, or a person who believes prices will fall.
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 $2,000. During this time price rose, or where bullish.
You can also make $2,000 by selling first at $50 and buying later at $30. During this time prices fell, or where bearish.
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.
By Cory Mitchell, CMT
Check out my Forex Strategies Guide for Day and Swing Traders eBook.
Over 300 pages, forex basics to get you started, 20+ forex trading strategies and a 5 step plan for forex trading success.