The world of trading can get very complex because the financial markets are complex. There thousands and thousands of successful traders out there today. The amazing thing is that they all have carved their own niches and approach the markets in a unique way. This should be wonderful news for beginning traders because it demonstrates that there are thousands and thousands of different ways to proper in the markets. Its just a matter of discipline and finding the approach that suits your style and personality. With all that being said, new traders must begin somewhere, so let examine some basic terms and approaches to the markets.

Going Long This means that youre betting on the instrument (stock, future, option, etc) to go up and that you want to buy. You purchase the financial instrument, watch it rise and then sell it for a profit. Profit are realized when you buy low and sell high. Its also known as taking a long position.

Going Short This means that youre betting on the instrument to go down and that you want to sell or take a short position. A short position is closed out by buying those shares back or covering your position. This concept is very confusing to new traders because youre selling something that you dont even own. The thing is that youre still trying to buy low and sell high, youre just selling high first and buying low later. Think of it this way you go to a car dealer and order a new car, he charges you $20k and then looks to purchase it for a lower price. That dealer has taken a short position on the transaction between you and him. We dont recommend new traders to take short positions until they learn more about the market.

One thing to keep in mind about short and long positions is that theyre totally different in nature. There are by far more traders out there taking long positions than those taking short ones. Human nature tells us that we buy with the expectation of rising prices. The concept of wanting prices to drop is against human nature and therefore short positions can be more erratic as a result.