How to profit from both bull and bear markets: A deep understanding of Long and Short orders

Using Long Positions to Open a Center for Buying in Expectation of Price Increase

When traders open a Long position in derivatives (Derivatives) or other permitted instruments, it means they are betting that the price will rise. This situation is called “buy low - sell high,” which is a basic strategy that most traders start with.

For example, suppose a trader believes that the stock price will rise from the current price of 320 baht. They buy 100 shares at this price, with a total cost of 32,000 baht. When the prediction is correct and the price increases to 330 baht, they close the position by selling, resulting in a profit of 1,000 baht (100 shares × 10 baht).

However, if the market does not go as expected and the price drops to 310 baht, the trader decides to close the position to limit losses. In this case, they incur a loss of 1,000 baht instead of making a profit.

Short Order: Opening a Center for Selling in Expectation of Price Drop

Conversely, opening a Short position involves selling assets first, expecting the price to fall. After the price drops as anticipated, the trader buys back at a lower price, earning a profit from the difference. This is called “sell high - buy back low.”

Short orders are not available for all asset types. They are mostly available in derivative instruments like CFDs and other instruments designed to allow traders to profit from falling prices.

Imagine a trader receives information that a certain company might face production issues. They believe the company’s stock price will decline from the current 320 baht. They sell 100 shares, receiving 32,000 baht. When the news is confirmed and the price drops to 310 baht, they buy back the shares for 31,000 baht, making a profit of 1,000 baht.

However, if the trader’s prediction is wrong and the price rises to 330 baht instead of falling, they will have to buy back at a higher price, resulting in a loss of 1,000 baht.

Fundamental Differences: Long vs. Short in Practice

Profit potential: Long profits when prices go up. Short profits when prices go down. This allows traders to generate income in both market conditions.

Opening the position: Long starts with buying. Short starts with selling.

Risks: Long has the risk of price falling. Short has the risk of prices rising, with no limit. The risk may be higher.

Application in Different Instruments

For stocks, shorting may require borrowing shares from a broker first, which can be complex and incur costs. However, instruments like CFDs make it easier for traders to open short positions without borrowing actual assets, enabling quick and convenient entry and exit.

Using (Leverage) allows controlling a larger amount of assets with less capital. However, this also means that losses can be amplified.

Cautions

Having a deep understanding of Long and Short positions is fundamental. But disciplined risk management is equally important. Derivative instruments can carry high risks, so investors should study and understand market mechanisms thoroughly before investing real money.