Today, a friend surprisingly asked me this basic question: What is the principle of short selling and going long? I specially created this image to help everyone understand.
1. Bearish and Short Selling#
Bearish: Refers to the belief that the market will decline.
Short Selling: Refers to the selling action taken based on bearish expectations. In the spot market, direct short selling is not possible, but it can be achieved through futures or contract leveraged trading.
Short Seller: Refers to an investor who believes that the current cryptocurrency price is high but holds a pessimistic view of the future market, expecting the price to fall. Therefore, they sell the cryptocurrency they hold at the current price and plan to buy it back after the price drops, thus earning a profit from the price difference. This operation of selling first and buying later is called short selling.
For example: Suppose a cryptocurrency is currently priced at ten yuan, and you expect its price to fall, but you have insufficient funds (for example, only two or three yuan). At this point, you can use two yuan as collateral to borrow one cryptocurrency from a third party (such as an exchange). After borrowing, you immediately sell it on the market for ten yuan, obtaining ten yuan in cash (this cash cannot be withdrawn as it needs to be used to repay the borrowed cryptocurrency).
If the price drops to five yuan as expected, you can buy one cryptocurrency for five yuan to return to the third party. After repayment, the remaining five yuan is your profit (excluding interest). This is the process of making a profit from short selling.
Conversely, if the price rises instead of falling, the collateral will face losses. If the losses exceed the collateral's capacity, it is called a liquidation, which may result in a total loss of principal.
2. Bullish and Going Long#
Bullish: Refers to the belief that the market will rise.
Going Long: In the spot market, buying is considered going long. Earning a profit by buying low and selling high falls under the category of going long.
Bull: Refers to investors who are optimistic about the market outlook and expect the price of cryptocurrency to rise. They buy cryptocurrency at the current price and sell it for profit after the price increases. This operation of buying first and selling later is called going long.
For example: The current price of SOL is 140U. If you are optimistic about its prospects, you buy it at 140U. Later, when the price of SOL rises to 280U, you sell it and make 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.
Summary:
- "Going Long" refers to being optimistic about the market rising, buying low and selling high to earn a profit.
- "Short Selling" refers to being bearish on the market, borrowing cryptocurrency to sell and then buying back after the price drops to earn a profit.
- Bulls represent bullish investors, while bears represent bearish investors, reflecting different market expectations.
@For those who don't understand SOL, original content
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