Thursday, 5 April 2018

CRYPOTOCURRENCY: IS LONG POSITION LESS RISKY THAN GOING SHORT?


SOURCE: https://www.investopedia.com/ask/answers/031715/going-long-considered-be-less-risky-going-short.asp

A:
Two positions an investor can be in are long or short. A long position is created when an investor buys a security, such as a stock. A short position is the opposite of a long position. There are risks associated with both. Theoretically, a short position has a higher risk than a long position.
When an investor or trader goes long on a security, he buys a security, such as a stock, commodity, exchange-traded fund (ETF) or option and expects the value to rise. For example, an investor enters a long position in one call option contract in company XYZ and thinks its stock price will increase. The investor can only lose his premium, the price he paid for the contract. In theory, his risk/reward is defined. In other words, he knows his risk and his potential downside.
On the other hand, when an investor is short on a stock, he borrows shares with the belief that the stock will decrease in value. If he is entering a short position in an option, it is known as writing a contract. Referring to the previous example, suppose the investor shorts one XYZ call option contract. The investor only receives the premium, the price for which he sold one call option contract. This is considered riskier than being long a call option contract because the short position has an unlimited potential loss. The risk in this example is unknown because the stock price can theoretically go to infinity and the investor's reward is confined to the premium he received.
RELATED FAQS
  1. What's the difference between a long and short position in the market?

    Long positions in a stock portfolio refers to stocks that have been bought and are owned, whereas short positions are those ... Read Answer >>
  2. What is the difference between a long position and a call option?

    Learn what a long position in a stock is, what a call option is, and the difference between owning shares of a company and ... Read Answer >>
  3. How long can a trader keep a short position?

    Learn whether there are any limitations on how long may an investor hold a short position, and explore the costs associated ... Read Answer >>
  4. Short Selling, or Selling Something You Don't Own

    Money can be made without actually owning any shares, but short selling isn't for new investors. Read Answer >>
  5. What does it mean to be long or short a derivative?

    Find out more about derivative securities and what it indicates when traders or investors establish a long or short position ... Read Answer >>
  6. How does one make money short selling?

    Short sellers make money by betting a stock they sell will drop in price. If it drops, the short seller buys it back at a ... Read Answer >>
RELATED ARTICLES
  1. TRADING

    The Difference Between a Long and Short Position

    Stocks are owned in a long position and o


Read more: Is going long considered to be less risky than going short? | Investopedia https://www.investopedia.com/ask/answers/031715/going-long-considered-be-less-risky-going-short.asp#ixzz5Bo4e0ibs
Follow us: Investopedia on Facebook

1 comment:

  1. I was very pleased to find this web-site. I wanted to thanks for your time for this wonderful read!! I definitely enjoying every little bit of it and I have you bookmarked to check out new stuff you blog post. Whaleclub Review

    ReplyDelete