Crypto Academy

Take a position

Take a position

5 min reading

If you are new to cryptocurrency and would like to know everything about taking a position, then this article is for you.

to take a position

Take a position

If you are new to cryptocurrency and would like to invest in a position, then this article is for you. Many different trading strategies can be used when trading cryptocurrencies. As an investor, it is important to know your capabilities. When we talk about opening a position, notice that there are two positions: short and long. A long or short investment strategy is commonly associated with hedge funds. 

However, an increasing number of cryptocurrency owners are using the same approach to diversify their portfolios and increase profits. If you are enthusiastic about making money when cryptocurrency prices rise and fall, then you should pay close attention to this strategy. Cryptocurrency traders who decide to go long have a lot of faith in the asset they are buying. What does it mean when traders go long? It just means what they are buying.

History

In the 1850s, the terms “short” and “long” positions became common in American stock and commodity exchanges. The Merchant’s Magazine and Commercial Review, Vol. XXVI, January-June 1852, may contain the earliest mention of short and long positions. Regardless of the names, the period for a short position can be quite long (a week, a month), and the period for a long position can be quite short. The terms short and long were borrowed from the world of traditional finance and adopted by the bitcoin industry.

What is a long position?

A long position is a trading position where a trader buys a currency at a lower price and sells it later at a higher price, expecting an increase in income as the market for that particular currency rises. A long is profitable if the asset goes up in value after the trade is opened, and unprofitable if the asset goes down in value.First and foremost, it is important to note that long positions are always implemented when the traders anticipate that the price of a cryptocurrency will increase, while studying the time frame with which they are operating. 

Let’s look at a simple example to illustrate a long position. Paul, a cryptocurrency trader, after carrying out some technical analysis anticipates that the market will finally bottom out for a cryptocurrency token he likes. After carrying out research and seeing that the volume of graphics is increasing and there is some good news from the development team, he decides to go long. He then trades at a very attractive price and receives the desired amount of tokens and it is only after several weeks that he can be able to ascertain his assumptions. The price between the tokens begins to rise, as well as the value of the asset. If eventually, he notices that the tides may be changing, he could sell his assets to avoid any loss. It is important to note that there is no specific time frame for opening a long position. You can keep it as long as you like.

It is however important to note that whoever will want to take a long position should, first of all, get acquainted with the news in order to perfectly understand the crypto market. 

What is a short position?

A short position is a transaction to sell a financial asset. It is opened in order to make money on a price drop. That is, if a trader realises that the price will fall soon, he can sell the stock now at a higher price, and buy it later at a lower price. The difference will be a profit.

To open a short position, you must wait for a reliable trading signal, calculate the trade in your business plan and open a Sell order. Contrary to the long position, a short position is implemented when the trader foresees that there will be a decline in the price of a digital currency. Just like the long position, the trader will have to ensure that his decision is a result of the market analysis carried out.

A crypto trader uses a short position, assuming that the cryptocurrency market is falling. This is a temporary downturn to your advantage. Simply put, a trader can go on a short position when the price is unable to break the resistance line and therefore starts declining. With short positions, you buy now to sell later and this can be applied with or without margin. However, budding investors should be very careful when playing in uncharted waters with money that doesn’t belong to them.

For example, Courtney believes that the current cryptocurrency market is a bubble that is waiting to explode. She decides bitcoin is ready for a big dip and wants to cut her trade. She borrows a few coins from the exchange and sells them. As expected, the market starts to fall. With the profits she received, she can now buy more bitcoins than she had, pay for the exchange and still make a profit.

There are several exchanges on which you can open long and short positions and anticipate an upward or downward trend. Most platforms that you can engage in margin trading also allow you to open long or short positions. It is risky to open long or short positions. There is more risk in opening a short position. Of course, it is possible that the price of a cryptocurrency will suddenly start to rise after an investor has just sold coins in the hope of buying them back later at a lower price. At that time, the investor had to wait a long time because he now suffers a loss by buying back the more expensive coins. The same, of course, applies to a long position when prices fall.

Another important question is how margin trading enhances the goals of long and short positions. Margin trading can enhance the potential gains from long and short positions through leverage – i.e. borrowed funds. A long or short position may be profitable even if the currency is volatile. However, experienced traders choose to trade on margin because it can increase profit margins many times over. Although the risks increase as well, this is why margin trading should be used with extreme caution. 

Trading on margin includes trading with leverage. This can be advantageous for both long and short positions. Margin deposits use funds allocated by third parties, such as an exchange trading floor or other traders, who are encouraged to contribute their funds. This allows you to invest larger amounts with leverage, and multiply your profit potential by several times. Margin trading is one tool that allows you to increase the profit potential of long and short positions.

In a nutshell, the decision to take a long or short position depends on the trader and the goals he wants to achieve. However, it is always advisable for beginners to be careful when trading. So, after understanding the different positions or strategies in the crypto market, we invite you to take a position and start trading now.

Conclusions

Definitions

definitions

7 min reading

Increase your vocabulary by exploring crypto definitions with bit4you Academy

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Train yourself with definitions

Cryptocurrency

    • Altcoins are alternative cryptocurrencies that were launched after the success of bitcoin. Altcoins are created by diverging from the fundamental rules of the cryptocurrency’s network or by developing a new cryptocurrency from scratch.
    • Bitcoin (BTC) is the first peer-to-peer digital cryptocurrency in the world, based on blockchain, launched in 2009 by Satoshi Nakamoto.
    • Cryptocurrency is a type of digital currency based on cryptographic methods and blockchain technology.
    • Ethereum (Ether) is an open-source, blockchain-based, decentralized software platform, launched in 2015 by Vitalik Buterin and used for its cryptocurrency, ether. It enables SmartContracts and Distributed Applications (DApps) to be built and run without any downtime, fraud, control, or interference from a third party.
    • FUD is acro of «Fear, Uncertainty, and Doubt». When the crypto community calls some news FUD, it means that the news is probably not an objective assessment, but a rumor that can affect the price of bitcoin.
    • Scammer is a hacker or “thief” in the crypto world.
    • Token is the unit of cryptocurrency. Tokens are a kind of shares of new companies and cryptosystems. They can be received with the help of buying it during ICO or when entering exchanges.
    • White paper a document describing the main issues and methods of their solution within the framework of the presented project. White paper usually contains a detailed description, information about the current market situation and growth forecasts, conditions for the issuance and use of tokens, a list of team members and project consultants.
    • Initial coin offering (ICO) is an investment attraction procedure based on the sale of the company’s assets. Assets can be either tokens or a cryptocurrency received by emission.

Mining

    • ASIC (Application Specific Integrated Circuit) is used in the process of mining cryptocurrency using special equipment. Asics are created specifically for mining crypto. ASICs are engaged in decoding the blockchain and creating new blocks. ASIC calculations are carried out using special chips, and ASIC power is higher
    • Cloud mining is a type of mining that does not imply the purchase of equipment. The company buys necessary mining equipment and rents it out remotely.
    • Complexity of mining is a parameter that determines how much computing power is required to find a block in the coin network. The difficulty of mining grows as the hash rate increases.
    • Miner is a person who is mining cryptocurrency blocks with the help of special equipment.
    • Mining is the process of finding a block in the coin’s blockchain.
    • Mining pool is collectively mining cryptocurrency. Many devices are combined to find a block, the reward is shared among all participants.

Blockchain

    • Block is a list of transactions for a certain period of time. Miners receive a reward for the confirmation of these transactions. Blocks are mined and embedded in the blockchain sequential.
    • Blockchain is data storage technology in the form of a list of checked blocks, each of the blocks refers to the previous ones; the storage devices are not connected to the shared server.
    • Fork is a process of creating an alternative blockchain from an existing one. During a soft fork, a modification is made to change the original blockchain.
    • A hard fork splits the original blockchain into two independent ones. The result is a new cryptocurrency.
    • Halving is a process that lowers the reward for mining cryptocurrency. For example, on the Bitcoin network, halving occurs approximately every four years.
    • Key is a password for a cryptocurrency wallet. It consists of a particular list of characters. There is a possibility to lose your crypto in the case of losing the key.
    • Pending transaction is a transaction that has already entered the blockchain and is awaiting processing by miners.
    • Smart contract is a specific algorithm based on the blockchain. Smart contracts are used to conduct complex transactions such as exchanging assets through decentralized applications.
    • Transaction is the process of transferring funds from one account to another.
    • Wallet is a method of storing bitcoins for future use. The wallet stores private keys linked to bitcoin addresses.

Trading

    • «to the Moon» is the very rapid growth of price on crypto-asset.
    • All Time High (ATH) is the historical maximum of the value of the crypto-asset.
    • Attack 51% are cryptocurrency blockchain manipulations, which will make it possible to take control over the blockchain. A hacker or a group of hackers connects powerful mining equipment to the network to capture more than 50% of the computing power. It allows them to process transactions that are beneficial to the fraudster, for example, spend more money from the wallet than it has.
    • HODL is a strategy that presupposes buying and keeping an asset for some time, with the hope of its growth in the future. It is an abbreviation from the misspelling of the word “hold” on the forum. 
    • Investment strategy is an approach for the crypto investor to get the best profit, guided by the specific method of investment, assessing risks, capital needs, and goals.
    • Technical Analysis is a set of approaches that allows the assessment of the crypto market and its tendencies by monitoring and analyzing charts, graphs, and indicators. It requires special skills. 
    • Trading strategy is a plan or approach for traders in order to make a profit from deals.
    • Volatility is a rate at which the price of crypto-assets increases or decreases for a given set of returns. Sometimes, it can be turned to make a profit for investors or traders.
    • Whale is a significant market participant with a large amount of funds. It may have enough capital to manipulate the price of the asset in the crypto market. 

Conclusions