Long position? Short Position? Confused?
You must have heard people saying they have taken a long position or that they have taken a short position. In that situation, you might h
ave felt intimidated if you do not know the concept.
Do not worry, you have got our back:)
Let’s take a very simple example and understand this concept.
Imagine you have got 5 chocolates, now you are holding these chocolates, you must have bought them - So when you are holding something- you are said to be in a long position for that thing.
Hence, when in a long position, you first buy/hold something, then think about selling.
Now Imagine a little complex case, you sold these chocolates and now you don’t have any chocolates left.
Can you still sell the chocolates?
The answer of a non-finance person would be- “ Ofcourse not! I have already sold them”
But in Finance, yes you can do that, if you are selling something without having it, you are said to be in a short position. What you do is, you borrow the chocolates from your other friend, sell it and later on, you buy the chocolates and give back the chocolates to your friend.
All in all, you sell something that you don’t have (by borrowing) and buy it, later on, to give it back to the person you borrowed from!
So, when in a short position, you first sell, then buy.
Why do you do this?
Because you think the prices are too high at present. You can get the higher price now by selling and buying later when the prices will fall.
Yippie, you have learned the concept.
Now, Go boast about you know the concept and share this meme with your friends to help them understand this concept as well. We will share more details in the next story.
Do subscribe to us, if you haven’t till now.