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Views: In the cryptocurrency market, as well as in other financial markets, there are two directions of movement, depending on which market participants make trading decisions. Let's take a closer look at these concepts and how to use them in crypto trading.
History of the origin of the terms “short” and “long”
The terms “long” (long) and “short” (short) originally appeared in traditional trading of securities and commodities. They are borrowed from the English language, where “long” means “long” and symbolizes the expectation of growth of the asset, and “short” means “short” and indicates the desire to earn on the price decline.
These concepts became popular in the 18th century, when traders began short selling on the stock market. Over time, these strategies migrated to the cryptocurrency market and provided an opportunity to trade in two directions both when the prices of digital assets rise and fall.
Short in crypto trading - what it is
Short (Short, short position) is a trading strategy in which a trader makes money on a decrease in the price of a cryptocurrency. In other words, when opening a short position, a trader makes a calculation for a decrease in the value of the asset, expecting to buy it back later after the decrease at a lower price and thus lock in a profit.
The principle of shorting in crypto trading:
Borrowing an asset - a trader borrows cryptocurrency from an exchange or other counterparty to sell it at the current price.
Selling the cryptocurrency - the asset is sold on the market at a market or predetermined price.
Decline in price - the trader waits for the value of the asset to drop.
Cryptocurrency buyback - after the price drops, the trader buys the same asset, but cheaper.
Return of borrowed funds - the difference in the price of sale and purchase (buyback) is profit (less commissions and interest for the use of credit).
Example of a short:
Let's say bitcoin is worth $40,000. A trader borrows 1 BTC and sells it immediately. A few days later, the price drops to $35,000. He buys 1 BTC for $35,000, returns the borrowed asset to the exchange and locks in a $5,000 profit.
Risks and peculiarities of shorting:
Potential losses are unlimited because the price of the asset can theoretically rise indefinitely.
Margin trading - a short is most often leveraged, which increases both profit and potential losses.
Position liquidation - if the asset price moves upwards and reaches the margin call level, the exchange will automatically close the position, which will lead to losses.
Long in crypto trading - what it is
Long (Long, long position) is a strategy in which the trader gains profit due to the growth of the value of cryptocurrency. Having bought the asset, he expects to sell it later after the price increase and make a profit.
The principle of long position in crypto trading:
Buying the asset - the trader buys the cryptocurrency at the current price.
Waiting - holding the asset until its value rises.
Selling the cryptocurrency - the asset is sold at a higher price.
Profit taking - the difference in the buy and sell price makes up the trader's income.
Example of a long:
Let's say Ethereum is worth $2,000. A trader buys 5 ETH for $10,000. A week later, the price rises to $2,500. He sells 5 ETH for $12,500 and makes a profit of $2,500.
Risks and peculiarities of longing:
Limited profit - unlike shorting, where the price can theoretically fall to zero, the growth of the asset is limited by actual market conditions.
Portfolio drawdown - if the price falls, the trader suffers losses, but the position can be held longer, waiting for recovery.
Margin longs - the use of leverage increases potential profits, but also increases the risk of liquidation.
Hedging - what it is and how it depends on short and long
Hedging is a risk management strategy in which a trader or investor opens additional positions to minimize potential losses from adverse price movements. In cryptocurrency trading, hedging helps to reduce the impact of volatility, which is especially important in highly volatile markets.
Hedging can be compared to insurance: you don't earn directly from it, but you reduce potential losses.
How hedging and short and long positions are related:
Hedging is often accomplished through the opening of short or long positions, depending on the underlying asset and market situation.
Hedging by going short
If you already own a cryptocurrency (e.g. 10 BTC), but you are afraid of a drop in price, you can open a short position on the same asset.
If the price of BTC falls, the losses from the fall in the value of your asset will be offset by the profit from the short position.
If the price rises, the losses from the short will be offset by the increase in the value of the asset you own.
Example:
You own 10 BTC purchased at $40,000.
You open a short position for 10 BTC at the same price.
If the price drops to $35,000, your portfolio loses $50,000, but the short makes you the same profit.
As a result, your overall balance stays almost the same despite the price drop.
Hedging by long
If you already have a short position, but the market starts to rise, you can open a long position to compensate for possible losses from a short position.
This is useful if the trend changes and a bear market turns bullish.
Example:
You shorted 5 ETH at $2,000, counting on a decline.
Suddenly Ethereum starts to rise to $2,500.
To reduce your losses, you open a long on 5 ETH.
If the price continues to rise, your loss from shorting is offset by the profit from longing.
Advantages and disadvantages of longs and shorts
Advantages and disadvantages of longs (Long)
Advantages of longs:
1. Unlimited profit potential
In theory, the price of an asset can rise indefinitely, allowing for high returns.
2. Limited risk
The maximum loss is limited to the amount invested in buying the asset. If it falls to zero, the trader will lose only the invested funds.
3. Suitable for long-term investors
Long strategy is profitable in a bull market and is well suited for Holders (HODL).
4. It is possible to earn without leverage
Unlike shorts, longs can be opened without margin trading by simply buying an asset.
5. Supported by most exchanges
Long is possible in both spot and futures trading.
Disadvantages of longs:
1. In a bear market, the asset can lose value
If the price falls, you have to either take a loss or wait for a recovery.
2. Ineffective in a sideways market
If the price moves in a narrow range, growth can be slow and profits can be minimal.
3. High volatility of cryptocurrencies
Even promising coins can fall sharply in price, creating a risk for long-term longs.
4. Long wait for profits
Unlike shorts, where you can make money quickly, longs sometimes take months or years for the price to rise.
Advantages and disadvantages of shorts (Short)
Advantages of shorts:
1. Earnings on market declines
You can make profits even in a bear market when most assets are depreciating.
2. Quick profits when the price drops sharply
Cryptocurrencies are prone to severe collapses and shorting allows you to make instant profits.
3. You can hedge risk
Shorting helps protect your portfolio from losses if you already have assets you have bought.
4. Effectiveness in high volatility
The crypto market often falls faster than it rises, making shorts a powerful tool.
Disadvantages of shorts:
1. Unlimited losses
Unlike longs, where the loss is limited, in a short the price can rise indefinitely and losses can exceed the initial deposit.
2. High liquidation risks
If the price goes up sharply, the exchange may liquidate the position, closing it at a loss.
3. Interest on borrowed funds
Shorts require margin trading, which means that the trader pays interest on the borrowed assets.
4. Not all exchanges support shorting
Some platforms do not provide the possibility of opening short positions.
When to enter short and long
Deciding whether to go long or short depends on market conditions, technical analysis and fundamental factors.
1. When to go long:
Bullish trend (uptrend).
If the price shows consistent growth, forming higher highs and lows.
Confirmed by indicators such as EMA (moving average) or ADX (trend strength indicator).
2. Support and bounce from it
When price tests a support level and shows signs of an upward reversal.
Example: Bitcoin tests the $30,000 level and bounces upwards.
3. High Short Squeeze ratio (Short Squeeze)
If many traders have opened short positions and the price starts to rise, their liquidation can cause a sharp upward bounce.
4. Fundamental Factors
Good news (new partnerships, exchange listing, successful blockchain updates).
Positive macroeconomic backdrop (stock market growth, lower interest rates).
When NOT to go long:
During a global bear trend.
When reaching historical highs with no signs of consolidation.
When the stock is severely overbought (RSI above 70).
When to go short:
1. Bearish trend (downtrend).
Price is forming lower highs and lower lows.
Moving averages (EMA, SMA) are showing a downward direction.
2. Resistance and downward bounce
Price tests a resistance level and fails to break through it.
Example: bitcoin fails to break the $40,000 level and begins to decline.
3. High long ratio (Long Squeeze)
If too many traders opened longs and the price starts to fall, their liquidation can lead to a sharp decline.
4. Negative Fundamental Factors
Bad news (bankruptcies of cryptocurrency companies, bans by regulators).
Crisis in traditional finance (rising inflation, rising interest rates).
When NOT to go short:
At the beginning of a bullish trend.
When the long/short ratio is too low (if there are a lot of shorts, a Short Squeeze is possible).
In case of severe oversold (RSI below 30).
Conclusion
By understanding the price behavior and market context, you can use longs and shorts in your trading very effectively. Regardless of the direction of the trade, it is important to remember the risks, observe them and act according to your trading system.
Frequently asked questions
1. What is safer - long or short?
Long is safer because the maximum losses are limited to the purchase price, but in trading everything depends on the market situation.
2. Can I open a short position without leverage?
No, short positions always require leverage.
3. How to determine when it is better to long or short?
Use technical analysis, support/resistance levels and news.
4. What is position liquidation in shorts and longs?
It is a forced closing of a position by the exchange when there are not enough funds to cover losses.
5. Which exchanges support shorting and longing?
Most major exchanges such as Binance, Bybit, OKX, HTX, Gate. io, BingX provide an opportunity to open both long and short positions.
