Taking Long and Short Trades – All You Need to Know

The financial world is filled with terminology that can feel overwhelming at first—especially for active traders. The equity market is no different. 
Phrases like “I am long in the market” or “I am short in the market” are commonly used to express a trader’s current position. Similarly, someone might say “I’m going long” or “I’m going short” to describe their strategy. Simply put, a long position means you’ve bought stocks or futures, while a short position means you’ve sold them. 

In India, retail traders cannot directly short stocks they don’t own. To do so, you must either hold the stock already or borrow it. That said, you can sell futures contracts since they are derivative instruments. Depending on your market view, you can also choose to go long or short on options. 

Implications of going long

Going long—or buying—tends to be more straightforward and carries several benefits. When you buy equity stocks, you're investing in ownership with the hope that their value will rise over time. As stock prices climb, the value of your investment goes up too. If the prices drop, you incur a loss—but it’s limited to the amount you initially invested. In addition, long-term investors may benefit from dividends, bonus shares, and other ownership perks. 

On the other hand, going long on futures doesn’t offer the same benefits as owning shares. You won’t receive dividends or voting rights. However, the advantage lies in the lower capital requirement. Futures allow you to take large positions by depositing just a margin amount, which is a fraction of the total trade value. These are often used for hedging, speculation, or arbitrage. 

Implications of going short 

Short selling, or selling in anticipation of a price fall, involves offloading stocks with the aim of buying them back at a lower price. Since direct short-selling of equities isn’t allowed in Indian markets for retail investors, traders must borrow shares from a lender and pay a fee to execute this strategy. Shorting forfeits the benefits of ownership like dividends or rights. If the stock price falls, you make a profit; if it rises, you incur losses. 

Selling futures (going short) doesn’t require ownership of the underlying stock. As with long futures, a margin is required to initiate the trade. This strategy is popular for speculation and hedging. However, losses can be unlimited if the price rises instead of falling, as expected. 

Long and short of options 

Traders can also take long or short positions in options, although these require a clearer understanding of how options function. There are two main types of options: calls and puts. A call gives the right to buy an asset, while a put gives the right to sell—neither comes with an obligation to do so. For a deeper dive, explore the options module available on m.Stock. 

Going long on options involves buying a call (when you expect the market to rise) or buying a put (when you expect a decline). The cost of entry is a premium, which is far less than buying the asset outright. If the market moves against your view, your loss is limited to this premium. However, like futures, options do not provide ownership benefits. 

Going short on options involves selling a call (if you expect prices to fall) or selling a put (if you expect prices to rise). When you sell an option, you earn a premium upfront. But this comes with unlimited risk, as the seller bears the full responsibility if the market doesn’t move in the expected direction. Sellers, also known as writers, must provide margin to cover this exposure—just like in futures trading. 

Conclusion 

Familiarity with trading terminology is more than just vocabulary—it’s essential to understanding how market transactions work. Whether you’re just starting out or already trading actively on m.Stock, grasping terms like long and short will help you navigate strategies, assess risks, and make more informed decisions.