What is a “long position” (Long)

A long position in investment markets is an order to buy a certain asset at a certain price and sell it in the future. Taking a long position makes sense when an investor believes that the price of an asset will increase in the future. In practice, the contracts constructed in the financial markets allow trading of assets without their physical delivery, only exchange rate differences are settled.

Example of a long position

The essence of taking a long position is easiest to understand with an example:

The investor decided to take a position in which he undertakes to buy 1,000 Euros at the rate of 4.20 on a certain day. However, it turned out that on that day after the transaction, the exchange rate of the Euro rose to 4.25. Taking such a position allowed the investor to earn 1000 * (4.25-4.20) or 50 zlotys due to the increase in price.

What is a long position?

In trading, a long position is a position that allows you to buy an asset at a certain price. In practice, in the case of contracts found in today’s financial markets, it allows to settle the difference between the agreed price and the price of the day. In the case of a long position, the investor will gain if the value of the asset increases.

Long versus short position in trading?

A short position is the inverse of a long position. The two positions cancel each other out and, in theory, a trader in both a short position and a long position is needed to enter into contracts. We enter into a short position when we believe that the price of an asset will fall in the future.

What is a long position in the foreign exchange market?

Taking a long position in the foreign exchange market simply means buying a contract on a particular currency pair. We take a long position in the foreign exchange market believing that the rate of a particular currency will rise.

What is a stop loss in a long position?

Stop loss is a tool that allows us to limit (cut) losses when the price of an asset does not change according to our predictions. In the case of a long position, a stop loss means the automatic sale of an asset when the price falls below a value specified by the investor. It is a tool that allows us to consciously manage the maximum loss we are able to incur on our asset. In some countries, there are regulations that require the sale of contracts with stop loss settings to protect investors.