Long and Shorts: the trader's compass in volatile markets

In the world of cryptocurrency trading, two terms dominate any serious conversation: long and shorts. These concepts are not just market jargon but fundamental pillars that every trader must master. Whether you’re just starting out or refining your strategies, understanding how these positions work is the difference between consistent profits and avoidable losses.

From the past to the present: the origin of long and shorts

The history of these terms dates back further than many believe. One of the earliest public mentions of long and shorts appears in The Merchant’s Magazine, and Commercial Review in its January-June 1852 edition. Although stock trading had been practiced for centuries, it was during the 19th century that these terms gained popularity in traditional financial markets.

The etymology is intuitive: a long position reflects the belief in a prolonged upward movement —prices rarely jump instantly, they take time—. Conversely, a short aims to capitalize on quick, less predictable declines. The logic lies in the nature of price movements: gains are gradual, drops are explosive.

What are longs really? The art of betting on the rise

A long is fundamentally a bet in favor of the market. When you open a long position, you’re acquiring an asset at the current price expecting to sell it at a higher price. It’s the most intuitive way to trade.

Imagine Bitcoin is trading at $61,000 and your analysis suggests it will reach $65,000 in the short term. Your move is simple: buy now, wait, sell later. The difference between the selling price and the purchase price is your profit. If the token you’re monitoring costs $100 today but you project it will reach $150, your potential gain is $50 per unit.

Longs are intuitive because they replicate the logic of traditional buying. You don’t need to understand complex mechanisms or request loans. It’s the natural approach for beginners and professionals who believe the market will rise.

Shorts: profiting when everything falls

Shorts invert this logic. Here, you don’t buy expecting a future sale —you do the exact opposite—. You borrow an asset from your broker, sell it immediately at the current price, and hope to buy it back later at a lower price to return it.

Practical example: you believe Bitcoin is overvalued at $61,000 and will drop to $59,000. You borrow one Bitcoin, sell it at the current price ($61,000), wait for the decline, buy it back at $59,000, and return the unit to the broker. Your profit is $2,000 minus the loan fees.

Although it sounds complicated in theory, modern trading platforms automate all this. You press a button, and the operation executes in seconds in the background. Your only responsibility is to monitor the position and close it at the right moment.

The market dichotomy: bulls versus bears

All trading dynamics boil down to an age-old battle between two archetypes: bulls and bears. This figurative language is omnipresent in finance.

Bulls are bullish traders. They believe the market will go up and open long positions. Their strategy is simple: buy, accumulate demand pressure, raise prices. The bull “pushes” prices upward with its horns.

Bears are bearish traders. They anticipate declines and execute shorts, selling assets and increasing supply. The bear “presses” prices downward with its paws.

This dichotomy creates two characteristic market states: a bull market where bulls dominate and prices rise, and a bear market where bears take control and prices fall.

Smart protection: hedging as a shield

No trader has absolute certainty. That’s why hedging exists: a defensive strategy that uses opposite positions to minimize damage if prices move unexpectedly.

Suppose you own Bitcoin and believe it will go up, but you don’t rule out a correction. You open a long position of two Bitcoins to maximize gains. Simultaneously, you open a short of one Bitcoin to curb losses if the worst happens.

If Bitcoin rises from $30,000 to $40,000:

• Long gain (2 BTC): 2 × ($40,000 - $30,000) = $20,000
• Short loss (1 BTC): 1 × ($40,000 - $30,000) = -$10,000
• Net result: $10,000

If Bitcoin drops to $25,000:

• Long loss (2 BTC): 2 × ($25,000 - $30,000) = -$10,000
• Short gain (1 BTC): 1 × ($30,000 - $25,000) = $5,000
• Net result: -$5,000

Hedging reduced your risk of loss from $10,000 to $5,000. The “cost” of this protection is a potential gain also reduced: from $20,000 to $10,000.

A common beginner mistake is opening long and short positions of equal size expecting “guaranteed protection.” In reality, one operation fully offsets the other, and after paying commissions, the result is negative. Hedging requires smart proportions, not perfect equivalence.

The modern catalyst: perpetual futures and derivatives

How do modern traders open shorts without actually owning the asset? The answer is futures, particularly perpetual contracts.

Futures are derivatives that allow speculation on price movements without actual ownership of the asset. Perpetual contracts (popular in crypto) have no expiration date, allowing you to hold long and short positions indefinitely. Settlement contracts directly cash out the difference in price without delivering the physical asset.

Futures are the mechanism that truly popularized shorts in cryptocurrencies. In the spot market (physical purchase), you only profit if the price goes up. With futures, you profit in both directions.

But greater access comes with higher risk. Most platforms charge a funding rate every few hours: the difference between spot price and futures price. Maintaining positions has a cost.

The invisible threat: liquidation and margin calls

When trading with leverage (borrowed funds), there’s a red line: liquidation. This is the forced closing of your position when collateral (margin) no longer covers potential losses.

The typical process: the market moves sharply against you, your margin erodes, the platform sends a margin call requesting you deposit additional funds. If you don’t do so within the deadline, the position is automatically closed, realizing the loss.

Avoiding liquidation requires discipline: using conservative leverage, continuously monitoring collateral levels, and maintaining available cash reserves. The temptation to maximize gains with aggressive leverage is seductive but deadly.

Balance: advantages and disadvantages

Long positions offer simplicity: buy, wait, sell. The logic is straightforward and psychologically easy to handle. Additionally, the risk is technically limited to your initial investment (in spot markets without leverage).

Shorts are counterintuitive. Your mind has been programmed for millennia to “buy low, sell high,” not “sell high, buy low.” They require extra mental discipline. Moreover, price drops occur more violently than rises, generating amplified volatility.

Leverage magnifies both sides. Yes, you can multiply gains using borrowed funds. But you also multiply losses. Managing multiple positions with different collateral ratios makes trading a full-time activity.

Synthesis: mastering the dual art

Long and shorts are the two wings of modern trading. Longs allow you to capitalize on market optimism; shorts give you tools to navigate pessimism or protect gains. Bulls build wealth in bull markets; bears find opportunities where others see crises.

But neither is inherently superior. The true trader is ambidextrous: can execute longs when analysis justifies, can execute shorts when opportunity arises. Some markets favor bulls for years; others, bears. Success lies in being flexible, mastering both tools with equal precision.

The key is to remember: potential gains grow with complexity and risk. Futures, leverage, and derivatives offer multiplied opportunities but also bring multiplied dangers. Margin calls and liquidation are not myths—they are real threats for those who forget that all speculative gains carry corresponding risks.