The long and short of it.

[Shwty]

I am new to trading and reading around I keep seeing phrases such as being long or short of a stock, going long or short, shorting, etc.. can anyone tell me what this means. Is it a noun or a verb or adjective etc. as it seems to be used in various contexts. Thanks

 

[FetteredChinos]

hmm, noun? adjective? most accurate description is probably an abstract adjective.

now there's confusion..

simply:-

LONG - buying the stock/index/commodity/future etc in the anticipation of price appreciation, and then to be sold at the higher price

SHORT - technically borrowing-to-sell the stock/index/commodity/future etc in the anticipation of price decline, and then the position is "covered" when an equal amount is bought, thus resulting in a flat position (ie no exposure to the market)


hope this helps,

FC

 

[Shwty]

Hmm. It's clearer but not quite there. What do you mean by borrowing in this context.

So is 'going long', buying a stock etc. in order to sell it at a higher price?
and 'shorting', selling it so that you can buy it back at a lower price?

Thanks again.

 

[FetteredChinos]

yup you've got it. when LONG you want the price to go :arrowu:

when short you want the price to go :arrowd:

Doesnt always work like that though. Trust me!



As regards my "borrowing" comment, it was to try to explain the shorting concept. If you think the stock is going to fall in value, you "borrow" the stock from the market, so you can therefore sell it. Its a crude definition, and is quite complicated as there are 3 people involved in the transaction - you, the new buyer, and the original owner of the stock. Unlike when buying a stock as there are only you and the original owner.

this link may explain it a bit better

http://www.daytradingworld.com/shorting_stocks.html

hope this helps..


basically you dont need to concern yourself with the whys and wherefores... most people dont, especially if spreadbetting.

FC

 

[Shwty]

I see. So the shorting bit can only be done with spreadbetting brokers. I use Comdirect and I don't think this option is available. I suppose I could short my own stock if I was sure it was going to rise again after a dip. But as you can see I'm not sure about much at the moment. Thanks for your help.

 

[TheBramble]

No. You can short most stocks with most brokers most of the time.

With SBs you're not really buying/selling stocks - just buying/selling their price on the underlying stock/index etc.

 

[Sharky]

One to add to the First Steps Guide me thinks!