You often hear words like long, short, bullish, and bearish in your daily life. These are financial terms used in trading. Every trader must understand the meaning of these words. Regardless of whether you are trading or not, you must understand these words. You can benefit from learning the definition of these financial words.
If an investor has a “long” position, that means they have the expectation that the stock value will rise in the future. It is a strategy where the person buys stocks at a low price and sells them at a high price.
Suppose you have a long position in 100 shares of ABC Limited. Each share is priced at ₹10, making your total investment worth ₹1,000. Then you sell them at ₹10.50 per share. By which you get a total of ₹1,050, in which you get a profit of ₹50. In such a situation, your long position will be profitable.
On the other hand, if the share price falls to ₹9.50, you will make a loss of ₹50, and your long position will not be profitable.
The opposite of a “long” position is a “short” position. A trader may decide to short a stock when he expects that the price of that stock is likely to decrease in the near future and has plans to buy it later.
Traders can sell at a high price and buy back at a lower price, which is called being short or short selling. In this technique, traders try to make money from a stock’s declining value. A “short” position is the sale of a stock that an investor does not own. In this scenario, traders borrow the shares from an investment bank or other financial institution, paying a fee to borrow the shares while the short position is in place. After that, sell it, then buy it back cheaper so they can earn a profit.
Suppose a stock which is currently trading at ₹100, you predict that the price of this stock will fall after some time. So you borrow 50 shares and sell them at ₹100 per share for a total of ₹5,000 (50*100).
According to your estimate, after some time the share price comes up to ₹70, then you buy 50 shares by paying ₹3,500 (50*70). And return your borrowed shares, thus you earn ₹1,500 (50*30) from short selling.
Bullish or Bull
A bullish investor, also known as a bull,” believes that the price of one or more securities or shares will rise.
To say a trader is “bullish on stocks” means they believe the price of stocks will rise in value.
A bull market refers to when the price of an investment is rising. This is called an uptrend and typically occurs over a sustained period, such as months or years.
Bearish or Bear
Being bearish is the opposite of being bullish. A bearish investor, also known as a “bear”. A bearish belief is that the price of one or more securities or stocks will go down.
Calling a trader “bearish on a stock” means that they believe the stock’s price will decline in value.
A bear market refers to when the price of an investment is falling and is referred to as a “downtrend,” usually over a sustained period of time such as months or years.