Long (or Long Position)

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What is a 'Long (or Long Position)'

A long (or long position) is the buying of a security such as a stock, commodity or currency with the expectation the asset will rise in value. In the context of options, it is the buying of an options contract. A long position is the opposite of a short (or short position).

Buying a call (or put) options contract from an options writer entitles you the right, not the obligation, to buy (or sell) a specific commodity or asset for a specified amount at a specified date.

BREAKING DOWN 'Long (or Long Position)'

With a long position investment, the investor purchases a commodity and owns it with the expectation the price is going to rise. He normally has no plan to sell the commodity in the near future. A key component of long position investment is the ownership of the stock or bond. This contrasts with the short position investment, where an investor does not own the stock but borrows it with the expectation of selling it and then repurchasing it at a lower price. A key difference between a long position and a short position in investments is what the investor expects to happen to the price of a commodity.

Long and Short Position Investment Examples

With a short position, the investor does not own the commodity but sells it with the expectation the price is going to fall. In a typical short position scenario, the investor borrows stock from an owner and sells it to a long position buyer, who expects the price to rise. When the price drops, the investor purchases the stock at a lower price than what he sold it to the long position buyer. He then returns the borrowed stock to the original owner and realizes the difference between the selling price and the purchase price as profit.

For example, John borrows 100 shares of stock in ABC Company and sells them for $100 per share. The buyer is a long position investor because he owns the shares and and expects them to rise in price. However, the price of the stock drops to $5 per share. John purchases 100 shares at $5 per share and returns the 100 shares to Mary. He now has $500 in profit since he sold them for $10 but purchased them for $5. In actual practice, John would have to pay certain fees that lower his actual profit. In addition, he would have to reimburse Mary for any losses she might suffer as a consequence of lending the stock to John. He would also have to put up sufficient collateral to cover any losses in the event the price of the stock actually rose

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