How to Long and Short on Margin Trading
by Kamil S
When diving into the topic of margin trading, you will soon come across such terms as long and short positions. Experienced traders will integrate both long and short orders into their trading, taking advantage regardless of market conditions. Read on to find out how long and short trading can help you become more efficient in the markets.
What Is Margin Trading In Essence?
Margin trading implies you can open positions that are considerably larger than your current account balance. In simpler terms, with a small amount of money, you can open a much larger trade in the asset markets, otherwise called a leveraged position.
Margin trading and leverage are related concepts. Leverage is what boosts the potential to increase your purchasing power in the markets. More precisely, the orders of magnitude by which your position is amplified. Thus, you have the potential to make large profits with just a slight shift of the price in your favor.
Long Positions ⬆️
Whenever a trader holds a long position, it is a clear indication of anticipation that an asset's price will increase over time. When this happens, it will result in a profitable return on the initial investment. If an asset is sold for a higher price than initially purchased, you can profit from the difference in price.
Trading on margin, you can borrow assets to buy or hold other tradable assets. Once you sell the other tradeables, you can pay back the borrowed assets and interest, or a fee imposed for the use of an asset.
Short Positions ⬇️
As can be guessed, a short position is the opposite of a long position. To explain, holding a short position indicates anticipation of a decline in asset value over time. When a trader first borrows, then sells an asset with the purpose of later repurchasing or covering it at a lower price, they are creating a short position. By doing this, you are able to pay back the borrowed asset, while making profits from buying back the security at a lower price than what you initially paid.
The Difference In Risk
It is crucial to understand the difference in risk between long and short positions.
When opening a long trade, your total risk equals the sum of your investment. For example, if you purchase some coins worth $50 and the price drops to $0, you will lose $50 - the entire amount you invested.
Now, your potential risk when going short is infinite as you must eventually buy back the asset you shorted. The tricky thing is that an asset’s price can theoretically increase indefinitely in the meantime. For instance, you short for $50, and the asset’s price then jumps more than 100% and continues to rally. Eventually, you owe $50 plus whatever the amount of money that keeps accumulating on top of the 100% increase.
Learn more about the risks of margin trading and how to mitigate them.
The New Coinmetro Margin Exchange
Did you know that recently Coinmetro pushed forward one of the biggest product updates in recent times? Among several innovations in UX/UI, Spot exchange and Mobile App, we introduced a brand new Margin Platform that has been designed with the purpose of giving you a performant, safe and user-friendly experience, while helping you learn and develop your trading skills.
For sure, one of the advantages of margin trading is that you can profit from both long and short positions. If you are skilled enough, you can make money regardless of market conditions. While currently no coin or token is going #tothemoon, let us ask you this: Do you have a trading strategy for the current bear market?
Find some inspiration and get knowledgeable by learning about margin trading. Read more in this Learning Lab: Margin Trading for Beginners article.
If you are just starting out, we advise you to opt for a margin trading demo experience with Coinmetro, just so that you become familiar and start building some experience.
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