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Monday, October 3, 2016

Long Short Strategy of Trading

 

The Long and Short of Trading

Many times traders and analysts liberally use the terms `going long' and `going short.' Here is what these commonly used terms mean:

1. What does `going long' mean?

When someone uses the term `going long', it indicates that they are buying or are positive on a particular asset class mainly stocks. It is common among traders to use `long po sitions', which means bullish bets.

2. What does `going short' mean?

`Going short' refers to selling or betting that the stock will fall. Just like traders use `long positions' to describe bullish bets, bearish bets are known as short positions in trad er parlance.

3. How does one `go long' or `go short?'

A long trade occurs when there is buying, with the expectation to sell at a higher price in the future and realize a profit. On the other ture and realize a profit. On the other hand, a short trade is initiated by selling first (before buying), with the expectation to buy the stock back at a lower price and realize a profit. In the stock market, traders use stocks and futures and options to go long on an index or a stock. But, for going short, they usually prefer Futures and Options (F&O) market. This is because the stock lending and borrowing mechanism is still not buoyant. Savvy traders like hedge funds do a mix of both long and short strategies to bet on stocks and indices.

4. What is a long-short strategy?

Used by hedge funds, long-short strategy involves taking long positions in stocks that are expected to advance and short positions in stocks that are expected to fall. For instance, if someone feels the prospects for Sun Pharma is better than that of Lupin, they can go long on Sun Pharma by buying more stocks of the company and go short on Lupin by offloading their stake in the company . 

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