Why Bet On A Falling Price?
- A rising financial market is called a bull market; a falling market is called a bear market.
- Investors are happy with a bull market – they buy and watch the prices rise.
- Historically, when the ‘bull’ turns into a ‘bear’ only a few investors (usually the professionals) were able to make a profit. Most investors simply had to wait until the market turned into a ‘bull’ again.
- However spread betting allows you to bet on falling prices as well as on rising ones.
Don’t Forget: Spread Betting gives you the opportunity to make a profit in both rising
(bear) and falling (bull) markets.
Long And Short Compared
Long
- When you bet on a share price rising you are said to take a long position or go long
- You buy a bet expecting the price to rise
- If the price does rise you can sell the bet at a higher price than you bought it for – you make a profit
- However if the price falls you may have to sell the bet at a lower price that you bought if for – you make a loss
Short
- When you bet on a share price falling you are said to take a short position or go short
- You sell the bet expecting the price to fall
- If the price does fall you can buy the bet back at a lower price than you sold it for - you make a profit
- However if the price rises you may have to buy the bet back at a higher level than you sold it for – you make a loss
Long And Short Compared
- Long and short bets can be made for all durations, including daily bets, rolling dailies and quarterlies.
- When we make a long bet a stop loss is placed below our opening price to protect us from a falling price. However when making a short bet a stop loss is placed above our opening price to protect us from a rising price.
- Remember, markets can only go in two directions: UP or DOWN. So being able to trade in both directions can open up more opportunities for you.
Now that we know what a Short position is, let’s have a look at an example
To Sum Up
- A rising stock market is called a bull market, a falling one is called a bear market
- Historically only a few investors were able to profit from a bear market … until now
- Going long refers to buying a bet and selling it later. In a bull market this strategy will make a profit
- Going short refers to selling a bet and buying it back later. In a bear market this strategy will make a profit
- Being able to go short as well as go long can open up more trading opportunities for you
Congratulations!
You have now completed tutorial three.
In tutorial four we’ll see how paddypowertrader can perform some tasks for you,
which means you can spend less time watching prices on your computer screen.
