Long Position Vs

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Long và Short Positions

In the trading of assets, an investorEquity TraderAn equity trader is someone who participates in the buying và selling of company shares on the equity market. Similar lớn someone who would invest in the debt capital markets, an equity trader invests in the equity capital markets & exchanges their money for company stocks instead of bonds. Bank careers are high-paying can take two types of positions: long and short. An investor can either buy an asset (going long) or sell it (going short). Long & short positions are further complicated by the two types of optionsStock OptionA stock option is a contract between two parties which gives the buyer the right to lớn buy or sell underlying stocks at a predetermined price & within a specified time period. A seller of the stock option is called an option writer, where the seller is paid a premium from the contract purchased by the stoông chồng option buyer.: the Gọi and put. An investor may enter inlớn a long put, a long Hotline, a short put, or a short điện thoại tư vấn. Furthermore, an investor can combine long và short positions inlớn complex trading & hedging strategies.

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Long Positions

In a long (buy) position, the investor is hoping for the price to rise. An investor in a long position will profit from a rise in price. The typical stoông chồng purchaseStoông xã AcquisitionIn a stoông chồng acquisition, the individual shareholder(s) sell their interest in the company lớn a buyer. With a stoông chồng sale, the buyer is assuming ownership of both assets & liabilities – including potential liabilities from past actions of the business. The buyer is merely stepping into lớn the shoes of the previous owner is a long stochồng asmix purchase.

A long Điện thoại tư vấn position is one where an investor purchases a Điện thoại tư vấn option. Thus, a long Hotline also benefits from a rise in the underlying asset’s price.

A long put position involves the purchase of a put option. The lô ghích behind the “long” aspect of the put follows the same súc tích of the long hotline. A put option rises in value when the underlying asphối drops in value. A long put rises in value with a drop in the underlying asphối.

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Long Position Profits

In a long asmix purchase, the potential downside/loss is the purchase price. The upside is unlimited.

In long calls and puts, the potential downsides are more complicated. These are explored further in ouroptions case studyOptions Case Study – Long CallTo study the complex nature & interactions between options và the underlying asset, we present an options case study. It"s much easier to.

Short Positions

A short position is the exact opposite of a long position. The investor hopes for, and benefits from, a drop in the price of the security. Executing or entering a short position is a bit more complicated than purchasing the asmix.

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In the case of a short stoông xã position, the investor hopes lớn profit from a drop in the stoông chồng price. This is done by borrowing X number ofsharesStockWhat is a stock? An individual who owns stochồng in a company is called a shareholder & is eligible to clayên ổn part of the company’s residual assets and earnings (should the company ever be dissolved). The terms "stock", "shares", and "equity" are used interchangeably. of the company from a stockbroker & then selling the stoông xã at the current market price. The investor then has an open position for X number of shares with the broker, that has khổng lồ be closed in the future. If the price drops, the investor can purchase X amount of stoông chồng shares for less than the total price they sold the same number of shares for earlier. The excess cashCash EquivalentsCash và cash equivalents are the most liquid of all assets on the balance sheet. Cash equivalents include money market securities, banker"s acceptances is their profit.

The concept of short selling is often difficult for many investors lớn grasp, but it’s actually a relatively simple process. Let’s look at an example that will hopefully help clarify things for you. Assume that stoông chồng “A” is currently $50 per nói qua. For one reason or another, you expect the stoông xã price to lớn decline so you decide khổng lồ sell short khổng lồ profit from the anticipated fall in price. Your short sale would work as follows:

You put up a margin deposit as collateral for your brokerage firm khổng lồ loan you 100 shares of the stoông xã, which they already own.When you receive sầu the 100 shares loaned lớn you by your broker, you sell them at the current market price of $50 per nói qua. Now you no longer have any shares of the stock, but you vị have the $5,000 in your trương mục that you received from the buyer of your 100 shares ($50 x 100 = $5,000). You are said khổng lồ be “short” the stoông xã because you owe your broker 100 shares. (Think of it as if you said to lớn someone, “I’m 100 shares short of what I need to lớn pay baông chồng my broker.”)Now assume that, as you anticipated, the stock’s price begins to fall. A few weeks later, the price of the stochồng has dropped all the way down lớn $30 a giới thiệu. You don’t expect it to lớn go much lower than that so you decide lớn cthảm bại out your short sale.You now buy 100 shares of the stoông chồng for $3,000 ($30 x 100 = $3,000). You give sầu those 100 shares of stock lớn your broker khổng lồ pay him bachồng for (replace) the 100 shares he loaned you. Having paid baông chồng the 100 chia sẻ loan, you are no longer “short” the stock.You have sầu made a $2,000 profit on your short sell trade. You received $5,000 when you sold the 100 shares your broker loaned you, but you were later able to lớn buy 100 shares to lớn pay hyên baông xã for only $3,000. Thus, your profit is figured as follows: $5,000 (received) – $3,000 (paid) = $2,000 (profit).

Short stoông xã positions are typically only given khổng lồ accredited investors, as it requires a great khuyến mãi of trust between the investor và broker khổng lồ lend shares khổng lồ exexinh đẹp the short sale. In fact, even if the short is executed, the investor is usually required to lớn place a margin deposit or collateral with the broker in exchange for the loaned shares.

Other Short Positions

Short call positions are entered into when the investor sells, or “writes”, a hotline option. A short gọi position is the counter-các buổi party to a long gọi. The writer will profit from the short Gọi position if the value of the hotline drops or the value of the underlying drops.

Short put positions are entered into when the investor writes a put option. The writer will profit from the position if the value of the put drops or when the value of the underlying exceeds the strike price of the option.

Short positions for other assets can be executed through a derivative known as swaps. A credit mặc định swap, for example, is a contract where the issuer will pay out a sum lớn the buyer if an underlying asset fails or defaults.

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The Bottom Line

There is a wide variety of long & short positions that traders may adopt. A knowledgeable investor will have sầu grasped the many advantages and disadvantages of each individual type of long & short positions before attempting lớn incorporate using them inlớn his or her trading strategy.