A Beginner Friendly Guide to Long and Short in Futures Trading

Many friends still inquire about the basics—what does it mean to go long or short? I created this straightforward visual guide to help everyone grasp the concepts easily.

1. Bearish Outlook & Short Selling

Bearish outlook: You anticipate the market will decline.
Short selling: Selling an asset after predicting a price drop. While short selling is unavailable in spot markets, you can execute it through futures or margin trading.

Short position: Investors view the current price as excessively high and expect a market downturn. They sell their coins at the present price, planning to repurchase them later at a lower value—profiting from the difference. This process is termed short selling.

Example: A coin is priced at $10. You predict a price decrease but only have $2 or $3—insufficient to purchase one coin.
You can use $2 as collateral (margin) to borrow one coin from a third party. Immediately sell it at $10, but you cannot access the $10 yet because you still owe the coin.

If the price falls to $5, use $5 from your $10 cash to buy one coin and return it to the lender (e.g., the exchange). The remaining $5 is your profit (excluding interest). This demonstrates how shorting generates profit.

However, if the price rises instead of falling, your margin may incur losses. Should losses exceed your margin, it results in liquidation, potentially causing you to lose all capital.

2. Bullish Outlook & Going Long

Bullish outlook: You expect the market to rise.
Going long: In spot markets, simply buying a coin constitutes going long. You purchase low and sell high to earn the price difference.

Long position: Optimistic investors buy coins now, anticipating price increases, then sell at a higher price for profit. This buy-low-sell-high approach is known as going long.

Example: SOL is priced at $140. You are bullish, so you buy at $140. Later, SOL climbs to $280. You sell and gain $140 in profit. This exemplifies going long.

Essentially, "long" and "short" refer to groups sharing similar market expectations, not specific individuals.

Here’s a summary image for reference:

Summary

• Going Long: Anticipating price increases. Buy low, sell high for profit.
• Short Selling: Predicting price drops. Borrow and sell high, buy back low, return and profit.
• Bulls: Optimistic investors.
• Bears: Pessimistic investors.

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