Getting Practical

We've discussed a lot so far. We now know the basics of financial markets,  what types of instruments exist, and what strategies investors and traders  use to make money. But what do you need to know if you just want to dive  in? 

You'll need to know how to navigate a trading interface, choose between  different order types, and what to look out for when doing all that. Good  news, this is exactly what we explain in this chapter for you! Here we'll  discuss some of the practical aspects of getting into the world of  cryptocurrency.

Long Position

A long position (or simply long) means buying an asset with the  expectation that its value will rise. Long positions are often used in the  context of derivatives products, but they apply to basically any asset class  or market type. Buying an asset on the spot market in the hopes that its  price will increase also constitutes a long position. 

Going long on a financial product is the most common way of investing,  especially for those just starting out. Long-term trading strategies like buy  and hold are based on the assumption that the underlying asset will  increase in value. In this sense, buy and hold is simply going long for an  extended period of time. 

However, being long doesn't necessarily mean that the trader expects to  gain from an upward movement in price. There are derivatives products  that are inversely correlated with the price of the underlying asset. 

For example, a token called iBTC is inversely correlated with the price of  BTC. If the price of BTC goes down, the price of iBTC goes up, and vice  33  versa. So, if you're in an iBTC long position, that effectively means that you  expect the price of BTC to go down. 

Refferences : Crypto Giant

Short Position

Now this is a term you've probably heard when hanging out with friends  who've dabbled with trading! A short position (or short) means selling an  asset with the intention of rebuying it later at a lower price. Shorting is  closely related to margin trading, as it may happen with borrowed assets.  However, it's also widely used in the derivatives market and can be done  with a simple spot position. How does it work, you ask? Let's see, shall  we? 

When it comes to shorting on the spot markets, it's quite simple. Let's say  you already have Bitcoin and you expect the price to go down. You sell  your BTC for USD, as you plan to rebuy it later at a lower price. In this  case, you're essentially entering a short position on Bitcoin since you're  selling high to rebuy lower. Easy enough. But what about shorting with  borrowed funds?

This is a bit more complicated. You borrow an asset that you think will  decrease in value. You immediately sell it. If the trade goes your way and  the asset price decreases, you buy back the same amount of the asset that  you've borrowed. You repay the assets that you've borrowed (along with  interest) and profit from the difference between the price you initially sold  and the price you rebought. 

Still a bit confused? Let's see a practical example. We put up the required  collateral to borrow 1 BTC, then immediately sell it for $10,000. Now  we've got $10,000. Let's say the price goes down to $8,000. We buy 1 BTC  and repay our debt of 1 BTC along with interest. Since we initially sold  Bitcoin for $10,000 and now rebought at $8,000, our profit is $2,000  34  (minus the interest payment and trading fees). Boom, that's how you profit  from the price going down! 

Refferences : Crypto for Canadians