When entering the field of cryptocurrency, there are two big aspects that we need to pay attention to: trade and hold. With the category of trade, there are also many interesting terms that must be learned. Of these, Long and Short is an example. So what is Long Short and how does investor psychology behave when Long Short happens? Let's learn more with The Block 101 through this article!
1. What is Position?
Position is called position. We can simply understand it as the holding and ownership of a certain investor over a number of securities under certain market conditions, often related to stock price fluctuations.
As for the cryptocurrency market, position is also understood as the position of buying and selling currency pairs, meaning investors have both a need to buy and sell a certain currency.
Can be divided into two main positions: long position and short position.
A long position is a situation in which an investor has spent money to buy a security or currency pair and hopes to make a profit when the price increases.
In contrast, a short position is a situation in which an investor has participated in a sale on the cryptocurrency market and will make a profit when the price falls.
2. What is the Long concept?
Long – Buy – Buy is when a trader buys a cryptocurrency pair with the expectation of selling it at a higher price. In this case, traders profit from market price increases.
Depending on each position, investors have their own profit-making techniques. When investors think that the price of a certain cryptocurrency pair is about to increase, the first step is to buy. However, investors do not always get good prices. Therefore, most investors will not use their entire investment amount to buy, but often divide the investment amount into small shares to buy in many different positions. And when the price really increases, investors will proceed to step 2 which is to take profits from previous Buy/Long orders, and earn profits.
Buy EUR/USD = Buy EUR + Sell USD
3. What is the concept of Short?
Similar to Long, Short appears when traders short sell a currency in anticipation that it will decrease in price. In this case, traders will profit from the decrease in market price.
When predicting a price decrease, investors place an order to sell a cryptocurrency pair that they often think will decrease in the future, but they do not have any currency pair in hand, so they will use a leveraged account. leverage and margin to carry out your short selling.
And when those currency pairs really fall in price, investors will take profits on their Short/Sell orders and get their profits back.
Sell EUR/USD = Sell EUR + Buy USD
4. How does investor psychology behave when Long Short?
If an investor opens a Long Position, it means the investor has bought cryptocurrency pairs and hopes to profit when the price increases.
If the psychology of investors is the same, that is, they all have the same opinion of predicting that the exchange rate of a certain currency pair will increase in the future in the market, they will rush together to buy. Once the amount of Long placed at the same time is too much, it will cause the exchange rate to increase rapidly in a very short time. On the contrary, if an investor opens a Short position, it means the investor has sold cryptocurrency pairs and hopes to make a profit when the price drops.
In case the psychology of investors is the same, that is, they all have the same opinion of predicting that the exchange rate of a certain cryptocurrency pair will decrease sharply in the future in the market, they will sell short together. Once the number of short positions is too much at the same time, it will cause the exchange rate to plummet in a very short period of time.
Long positions and short positions often have a close relationship with bullish and bearish speculation activities. Therefore, you need to clearly understand and set stop losses in each of your trading orders to avoid unnecessary losses.
The act of buying or selling a currency pair at the beginning of a transaction is called opening a transaction (opening an order) and ending with the act of selling (closing an order). All trading values are converted, profit and loss offset are calculated and reflected in the currency you have in your account. As long as you have not closed the transaction, the transaction is not over, all profits or losses are only made on paper.
Above are the things you need to know about Long Short for beginners interested in the crypto field. Hopefully this article can help you have a deeper look at this term. If you find it useful, please share the article with friends and relatives so everyone can understand!