What are long and short positions?

Can you make money when a cryptocurrency falls? That’s what a short position aims for, while a long position profits when the price goes up. The names are often confusing: long and short don’t mean long-term and short-term investments.

Take a hypothetical token that costs €100. If you buy it and later sell it at €120, your long position makes €20 before fees. If it drops to €80 and you sell, your loss is €20.

Short selling reverses the order. You borrow a token, sell it at €100 and, if the price falls to €80, buy it back to return it. The €20 difference is your profit before interest and fees. But if you have to buy it back at €120, you take a loss.

With derivatives, such as futures contracts, you can open a long or short position without buying or borrowing the coin yourself. Your price exposure comes from the contract.

Why it matters

When you read that “shorts are being closed,” that can imply buying to close them. Likewise, closing long positions can create selling pressure. The effect depends on the product and the market’s liquidity.

A short position can also be used for hedging: someone who already holds crypto may aim to limit part of the loss from a possible drop. We think it’s essential to separate a position’s purpose from its direction.

What to watch out for

Leverage magnifies gains and losses and can lead to the position being forcibly closed, known as liquidation. A temporary move against you can wipe out your collateral before the price changes course.

When you buy a token without borrowing, your loss is limited to the amount you paid. In short selling through borrowing, the potential loss is theoretically unlimited, because the price can keep rising. Interest, fees and, with some derivatives, periodic funding payments also affect the final result. And one common misconception: selling coins you already own doesn’t by itself mean opening a short position.