Day 4 Finance: Long and Short
Imagine you're at a market where people buy and sell apples. Here's how "long" and "short" work in stock or crypto trading, using apples as an example:
Going "Long":
- Buying Low: You think the price of apples will go up in the future. So, you buy some apples now at a low price.
- Selling High: Later, when the price of apples goes up, you sell the apples at the higher price.
- Profit: You make money because you bought the apples at a low price and sold them at a higher price. This is called "going long."
Going "Short":
- Borrowing Apples: You think the price of apples will go down in the future. So, you borrow some apples from a friend and promise to return them later.
- Selling High: You sell the borrowed apples at the current high price.
- Buying Back Low: Later, when the price of apples goes down, you buy the same number of apples back at the lower price.
- Returning Apples: You give the apples back to your friend.
- Profit: You make money because you sold the borrowed apples at a high price and bought them back at a lower price. This is called "going short."
Summary:
- Long: Buy first, then sell later at a higher price.
- Short: Sell first (borrowed), then buy later at a lower price to return what you borrowed.
In stock and crypto trading, instead of apples, people are trading shares of companies or digital currencies. But the idea is the same!
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