Today, friends still ask me this basic question: What is the principle of shorting and going long? To help everyone understand, I specially created this diagram.
1. Bearish and Short Selling#
Bearish: Refers to the view that the market will decline.
Short Selling: The act of selling based on a bearish view. In the spot market, short selling cannot be done directly, but it can be achieved through futures or contract leveraged trading.
Short Seller: Refers to investors who believe that, although the current coin price is high, they hold a pessimistic view of the future market and expect the coin price to fall. Therefore, they sell the coins they hold at the current price and plan to buy them back after the price drops, thus earning the difference in profit. This trading method of selling first and buying later is called short selling.
For example: If the current price of a coin is ten yuan, you predict that its price will drop. However, you have insufficient funds (such as only two or three yuan) to buy a complete coin. At this point, you can use two yuan as a margin to pledge to a third party (such as an exchange) to borrow one coin. After borrowing, you immediately sell it on the market for ten yuan, obtaining ten yuan in cash. This cash cannot be withdrawn immediately, as it needs to be used to repay the borrowed coin.
If the coin price drops to five yuan as expected, you can use five yuan to buy back one coin to return to the third party. After repayment, the remaining five yuan is your profit (excluding interest). This process is how short selling profits.
Conversely, if the coin price rises instead of falling, the margin will face losses. When the losses exceed the margin's capacity, it is called liquidation, which may result in a total loss of principal.
2. Bullish and Going Long#
Bullish: Refers to the view that the market will rise.
Going Long: In the spot market, buying is considered going long. Buying low and selling high to earn the difference falls under the category of going long.
Bull: Refers to investors who are optimistic about the market outlook and expect the coin price to rise. They buy coins at the current price and sell them after the price rises to gain profit from the difference. This trading method of buying first and selling later is called going long.
For example: If the current price of SOL is 140U, and you hold an optimistic view, you buy it at 140U. When the SOL price rises to 280U, you sell it, making a profit of 140U. This process is going long.
It should be noted that bulls and bears do not refer to specific individuals or institutions, but rather to a group of people holding similar market expectations.
The above is a detailed explanation of going long and short, as well as bulls and bears.
In summary: "Going long" refers to expecting the market to rise, earning the difference by buying low and selling high; "short selling" refers to expecting the market to decline, earning the difference by borrowing coins to sell and repurchasing at a lower price. Bulls represent bullish investors, while bears represent bearish investors, reflecting different market expectations.
@Uncomprehending sol Original
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