THE LONG POSITION
When you buy first (buy to open) with the intention of selling later (selling to close), you are said to have a "long" position in the asset (e.g., stock). When you have a long position, you make money when the value of the asset increases. You lose money when the value of the asset falls.
The profit and loss (P&L) chart below shows the linear relationship between profit and stock price for a long stock position (assumes 100 XYZ shares purchased.) | THE SHORT POSITION
You can also sell first (sell to open) and buy later (buy to close). This is called short selling and, when you do this, you are said to be "short"the asset. You still want to buy low and sell high, just in the opposite sequence. When short an asset, you want the asset's value to fall. See the P&L chart below.
The profit and loss (P&L) chart below shows the linear relationship between profit and stock price for a short stock position (assumes 100 XYZ shares sold short.) |
