|Futures /Forwards:||A contract to buy or sell a financial instrument in the future for a pre-determined price. Futures are usually traded on an exchange, while forwards are usually traded over-the-counter.|
Buying & Selling
Going Long or Going Short
In traders’ jargon when we want to buy an instrument it is called ‘going long’. Going long is a concept all new traders should be familiar with. We’ve all heard the phrase ‘buy low and sell high’. That is exactly what we are doing. By buying or going long we want that instrument to rise in value. So if we buy 1 share for $5 and we sell it for $6 we have made a profit of $1 – simple.
The term ‘selling-short’ or ‘short-selling’ often confuses many new traders. Short selling allows traders to benefit from a fall in the market value of an instrument.
The easiest way to explain is with an example:
So say we sell stock which is currently trading at $500 per share and we believe that the price of the stock is likely to decline in the future to say $400 per share. We would like to profit from this fall in value and are willing to short sell 1 share so we can make $100 on this trade if it falls to this level.
Now you may be thinking that is a complicated process for a beginner trader. But as we are trading CFDs and futures contracts it is made as simple as possible. We do not have to find someone to buy on the other side of the transaction. Our broker will arrange that for us hassle-free and all we have to do is click on the SELL button if we believe the instrument will fall in value and alternatively click the BUY button if we believe it will rise in value.