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Longing vs. Buying and Shorting vs. Selling: A Quick and Easy Guide for Beginners



Longing vs. Buying and Shorting vs. Selling: One Minute Comparison, from Definition to Differences

If you are interested in trading stocks, options, or other financial instruments, you may have heard of the terms longing, buying, shorting, and selling. But what do they mean and how are they different? In this blog post, we will explain the basics of these concepts and compare them in one minute.

Longing and Buying

Longing and buying are two ways of expressing a bullish view on an asset, meaning that you expect its price to rise in the future. When you long or buy an asset, you own it and benefit from its appreciation.

However, there is a subtle difference between longing and buying. Buying simply means acquiring an asset with cash or other means of payment. Longing, on the other hand, implies that you are using leverage to amplify your exposure to the asset. Leverage means borrowing money or using derivatives to increase your potential returns (and risks) from a trade.

For example, if you buy 100 shares of Tesla stock for $1,000, you are spending $100,000 of your own money and own 100 shares. If the stock price goes up by 10%, you can sell your shares for $110,000 and make a $10,000 profit (10% return).

But if you long 100 shares of Tesla stock with 10x leverage, you are only spending $10,000 of your own money and borrowing $90,000 from a broker or a platform. You still own 100 shares, but your exposure is $100,000. If the stock price goes up by 10%, you can sell your shares for $110,000 and make a $10,000 profit (100% return). However, if the stock price goes down by 10%, you can lose your entire $10,000 investment (100% loss).

Shorting and Selling

Shorting and selling are two ways of expressing a bearish view on an asset, meaning that you expect its price to fall in the future. When you short or sell an asset, you do not own it and benefit from its depreciation.

However, there is a major difference between shorting and selling. Selling simply means disposing of an asset that you already own for cash or other means of payment. Shorting, on the other hand, implies that you are borrowing an asset from someone else and selling it in the market, hoping to buy it back later at a lower price and return it to the lender.

For example, if you own 100 shares of Tesla stock and sell them for $1,000, you are receiving $100,000 in cash and no longer own any shares. If the stock price goes down by 10%, you can buy back 100 shares for $90,000 and make a $10,000 profit (10% return).

But if you short 100 shares of Tesla stock, you are borrowing 100 shares from a broker or a platform and selling them for $1,000, receiving $100,000 in cash. You still owe 100 shares to the lender, but your exposure is -$100,000. If the stock price goes down by 10%, you can buy back 100 shares for $90,000 and return them to the lender, making a $10,000 profit (10% return). However, if the stock price goes up by 10%, you can lose $10,000 (10% loss).

Conclusion

Longing and buying are similar ways of expressing a bullish view on an asset, but longing involves leverage and higher returns and risks. Shorting and selling are similar ways of expressing a bearish view on an asset, but shorting involves borrowing and selling an asset that you do not own. Both longing and shorting require margin accounts and are subject to margin calls if the price moves against you.

If you want to learn more about these concepts, you can watch this video or read these articles1234. Remember to always trade responsibly and diversify your portfolio.


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