Long Position

Investment Dictionary -> Long Position

The term position covers any commitment to purchase or sell securities and commodities as well as their actual ownership by individuals and legal entities. Long position or long refers to the purchase of a security or a commodity with the idea of earning profits from a future increase in value. In view of foreign exchange, the primary currency is considered long while the secondary is viewed as short. It is important to focus on the value of the particular option, not the instrument itself.

Typically, a long position is established by means of buy order. The investor will profit only in case that the security increases in price. Long may also refer to a long position in futures contracts. The latter represents agreements between the entity which commits to deliver a certain commodity or security (short position) and the party that agrees to accept them (long position). Each futures contract will have specific provisions related to quality and quantity, established price per unit, deadline, and options for delivery. Again, the holder of this position will earn a profit only in case that the value of the futures contract increases. Another alternative is to offset the position by means of counter-contract. Investors who hold long positions are also referred to as bull speculators. The latter covers dealers and speculators who purchase investment portfolios with the intent of selling the securities and commodities at a higher price in the future.

In contrast, short selling refers to the sale of assets, typically securities, which have been borrowed by another entity. The aim is to earn a profit when the value of the asset decreases. The short seller pays smaller amount for repurchasing the assets than he has received for their sale. Naturally, he will loose money if the assets increase in value. Fees related to the assets' borrowing as well as payments for dividends represent additional costs.

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