curve-arrow-right curve-arrow-left fund2 trade2 secure2 powerful-2 simple2 user-friendly cost-effective-2 helpful-2 twitter-2 youtube facebook-2

Long Position

Long PositionA long position, also known as the bullish position, is a type of financial instrument that is contrasted with a short (bearish) position.

What Is a Long Position?

It is purchasing an asset with an expectation that its price will rise in the future. Long is one of the investing terms that can have several meanings. The most common of which is in the length of time an investment is held. For experienced investors, it is a common practice to hold short and long positions at the same time with the purpose of portfolio diversification. For example, forex traders can simultaneously go long on the currency they buy and short on the currency they sell. If a trader feels that the dollar will appreciate against the euro, they will buy dollars with euros and later sell them when they reach peak value. Long selling is typically related to stocks, bonds, futures, and options.

Long Securities Investment

Going long on securities (stocks and bonds) is the most conventional investment practice, especially for retail investors. The stock or bond owner typically expects that the security will go up in value. As a result, the owner will profit from this price increase, without any plans to sell the security in the nearest future. With such a buy and hold strategy, the investor does not need to constantly watch the market. In general, going long on securities is favorable for the investors, but they should beware of the prolonged bear market because it is beneficial for short sellers only. One more drawback is a large amount of tied up capital that could otherwise be used for other opportunities.

Long Options Contracts

In options contracts, long is not related to time but rather to the power that the trader holds in being able to buy the asset. An options investor goes long in an underlying entity by buying call options or selling put options. A long position in an option does not necessarily mean that the holder will profit if the value of the underlying asset increases.

Going long in an option gives the right (but not obligation) for the holder to use it. If the price grows larger than the strike price, the call option owner will probably use the option to buy the asset. They will profit if the difference between the price at that time and the strike price is greater than the premium that they paid. With a put option, the seller will profit if the value of the instrument goes up or drops by less than what the premium.

Long Futures Contracts

The holder of the position must buy the underlying entity at the contract price and at the expiration date. The investor will profit if the value of the underlying asset goes up because the price that they will pay will be less than the market price. Investors and businesses conclude long futures contracts to hedge against sudden price fluctuations. A company can use a long hedge to lock in a purchase price for a commodity that is needed in the future.

Unlike with options, a futures holder is obliged to buy or sell the underlying instrument. Let’s suppose that a petrol company believes that the price of oil is going to drop in the nearest future. The business can enter into a long futures contract with its oil supplier to purchase oil in four at $1,000. In four months, no matter if the price is above or below $1,000, the firm that has a long position on oil futures must purchase the oil from the supplier at the agreed contract price of $1,000.

The supplier, in their turn, is obliged to deliver the oil when the contract expires. Speculators can also go long on futures when they believe that the prices will increase. They are interested not in the delivery of a physical commodity but in profit from the price movement. Before the expiration, a speculator holding a long futures contract can sell this contract in the market.

Long Trades

For day traders, the "buy" and "long" terms are often interchangeable. By saying that they "go long", the traders indicate their interest in buying a specific asset. If you go long on 2,000 shares of a stock at $15, the transaction will cost you $30,000. If you can sell the shares at $15.20, you will receive $30,400, including a $400 profit minus commissions. When you go long, your profit potential is unlimited because the asset value can rise infinitely. If you buy 200 shares of a stock at $1, that stock could go to $2, $7, $100, etc. In the above example, the largest loss is possible if the share price drops to zero, resulting in a $1 loss per share.

Long Position: Pros and Cons

A long position has the following advantages:

  • It limits losses.

  • It locks in a price.

  • It corresponds with the historic performance of a market.

However, the drawbacks of this position are as follows:

  • There are risks of sudden price changes, e.g. entering into a bear market, and short-term moves.

  • The position has an expiration date and thus can expire before the trader can benefit from it.

Summary

A long position refers to buying an asset and holding it with an expectation that it goes up in value. Investors and traders typically go long with currencies and securities as well as with the futures and options contracts. Experienced investors often combine short and long positions, e.g. by going long when purchasing one currency and going short when selling another currency.

Going long on securities is typically most popular among investors and is related to the time period during which security is held. In options contracts, long is related to the power that the trader holds when being able to buy the asset. As for the futures contracts, investors and businesses enter into them to hedge against sudden price movements. Speculators can also go long on futures when they believe that the price will go up.