Trading is usually done in one of two ways: you either go long by buying stocks, commodities or currencies, hoping they will increase in value over time or that they are undervalued at the current market price. The other way to trade financial markets is to short sell assets that you think are overvalued.

Short vs long trading is a popular choice for many traders because the risk profiles are widely different. Long trading offers unlimited profit potential but equally an unlimited loss profile as well. If the asset prices crash (bearish), there may be no limit to how much you can lose on your position. Short selling provides the trader with defined risk, limited to their margin deposit and greater liquidity than traditional long trades.


What is a short trading position?

Trading short is a method of profiting from an asset’s price decline. When the trader sells an asset, they agree to sell it at a predetermined price sometime in the future. They will hope that when that date arrives and they have to deliver on their promise, the cost to purchase the asset has dropped since they sold it – meaning they can buy it for less and still make a profit.

Many traders believe there is also significant upside potential on short positions. If the market crashes (the value of all assets drop), you can purchase more of them with your money, expecting them to increase in value over time again.

What is a long trading position?

Long positions are opened when an investor considers that the value of the underlying instrument will rise. A trader expects to benefit from capital appreciation when buying call options or put options on securities.

This is also considered long on stocks when owning stocks with the plan to sell at higher prices later. You can open long positions for any investment available on the derivatives market like equity or index futures.

Trading short vs long positions in Indian CFDs

There is no doubt that trading in Indian markets comes with its own set of challenges (like government regulations). However, if you want to employ shorting procedures, you must know precisely how to do it. It will help you decide whether this strategy makes sense at all, depending on what you’re trying to accomplish. 

Here’s how shorting works: If you expect that a particular stock will fall in value (and if your broker agrees), then you can borrow shares from somebody else and immediately sell them. Later on, when the price drops, you can easily purchase those same shares back with ease, thus making money. Practically speaking, this means that the share prices of any company can be easily influenced, depending on what narrative is being built about their company’s future performance.

Suppose things are going to plan for investors who have shorted stocks. In that case, they can eventually buy all the low volumes of shares they had previously sold, thus pocketing the difference between the sale and repurchase amounts. Unlike long positions where traders need to hold assets until maturity, short positions find themselves in the opposite situation. 

Similarly, long positions are very similar; however, it entails the process of borrowing low volumes of stocks at very high rates and then selling them for a later date. If you are right, and the stock falls in value (like initially), your gains will be immense and can be used to make profits or take advantage of other strategies like future or options trading. 

Summary

Trading CFDs India comes with risks and rewards; however, you must know precisely how it works and if your broker offers such services if you want to employ shorting procedures. Knowing these details will help you gain the upper hand when trading, but most importantly, it will ensure that you don’t lose money in the process. New investors should use a reputable online broker from Saxo Bank, who offer low commissions and excellent customer service.

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