One advantage that financial speculation, like spread betting, has over traditional forms of investment is that you never take possession of an asset. Whereas buying a stock means the more the stock is worth the more valuable your portfolio is, spread betting allows for greater flexibility.
When you’re speculating on market movement, you have the option to go either long or short. These terms are alternatively referred to as buy or sell. In this article, we’ll look at the difference between going long and short, and when you may wish to choose either option.
Going long, or buying something, means projecting that a market will increase in value. In other words, if the market increases in value, you make a profit.
Going long is the most popular form of spread betting. This is because it is familiar to both traders and investors. It is also because news and websites tend to predict the next big thing more often than they identify shares that will decrease in value, so the information out there tends to skew towards markets that will gain value.
Going short is the opposite of going long. You are betting that a market will decrease in value. If that happens, you make a profit. If the market increases in value, you lose a portion of your wager.
Going short is something unique to trading. When you actually take ownership of currency or a stock you always want it to increase in value. Going short therefore opens up numerous new options that traditional forms of investing ignore.
The most fundamental reason to go short is because you’ve identified a market you believe will decrease in value. Whether you’re monitoring tends or trading the news, sussing out a market that will lose value is just as important as finding those that will gain value when you spread bet.
Another reason you may want to go short is to hedge against another position. For example, if you own stock in a company, and you want to hold it because it pays a nice dividend, you may consider shorting that same stock so if the shares drop, you make a profit from it.
Day traders sometimes buy and short markets within the same day. This strategy requires that you pay close attention to the markets, but if mastered, it can be profitable. Because markets tend to fluctuate rather than move in consistent directions, buying and selling a market as it rises and drops is another way shorting is used.