What are Long & Short Trading Strategies? A Trading Day Concept

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What is the Difference between a Long and Short Trading Strategy?

You can make money if a stock price goes up or down depending on your strategy.

With a long strategy you can make money when the share price goes up. You first buy a stock and now you have a long position. When the share price goes up, you sell the stock at a higher price than where you bought it and you make a profit. If the share price goes down and you sell it at a lower price than where you bought it, you will have a loss.

A share price can only go down to zero. So the most amount of money a long strategy can loose is the price you paid for the stock.

With a short strategy you make money when the share price goes down. You must first borrow a stock you don’t own. You then sell that stock and now you have a short position. When the share price goes down, you buy the stock back at a lower price than where you sold it and you make a profit. If the share price goes up, and you buy it back at a higher price than where you sold it, you will have a loss. After you buy the stock back, you must return it and pay interest for borrowing it.

There is no limit to how high the share price can go up. So there is no limit to the amount of money a short strategy can lose!

Remember, you can make money if a stock price goes up or down depending on your strategy. Just make sure you understand the risks of each strategy.

Have fun trading stocks by playing Trading Day, our free stock market game.

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