How to profit from both rising and falling markets: a complete guide to trading positions in crypto trading

When a beginner enters the world of crypto trading, they immediately encounter two key concepts: longs and shorts. These basic tools allow traders to profit not only from rising markets but also from falling asset prices. Let’s understand how this works in practice and why longs and shorts have become the foundation of modern trading.

What’s Behind the Terms “Long” and “Short”

Long position (long) — is a classic approach: you buy an asset at the current price and hope it will rise. For example, if a token is now worth $100 and you forecast it will grow to $150, just buy and wait. The difference between $150 and $100 is your profit. This is the most intuitive type of trade and works exactly like buying on the spot market.

Short position (short) — is a more complex mechanism. Here, you borrow the asset from the exchange, immediately sell it at the current price, and then wait for the price to fall. When the price drops, you buy the same asset cheaper and return it to the exchange. The difference is your profit.

Let’s take a specific example: you believe Bitcoin is overvalued and will fall from $61 000 to $59 000. Borrow 1 BTC from the platform and sell it for $61 000. When the price drops to $59 000, buy BTC back and return it to the exchange. You keep the remaining $2000 minus the borrowing fee. In practice, this entire process is automated and occurs within seconds via buttons in the trading interface.

The Historical Roots of Trading Terminology

The exact origin of these terms is lost in history, but the first documented mention dates back to The Merchant’s Magazine and Commercial Review (1852). The logic behind the names relates to the original meanings of the words: “long” (English. long — long) hints at the duration of the position, as price increases rarely happen instantly. “Short” (English. short — short) reflects the fleeting nature of such operations — price declines usually develop faster and more unpredictably.

Bulls vs. Bears: The Main Market Players

In any market, there are two opposing categories of participants:

Bulls — traders expecting the market or a specific asset to rise. They open long positions, buy assets, and their demand helps push prices higher. The term comes from the image of a bull raising its horns upward, symbolizing an upward trend.

Bears — participants betting on falling prices. They open short positions, sell assets, and press down on prices. The image of a bear with lowered paws embodies a decline in value.

These concepts gave rise to two important market states: bull market (overall growth) and bear market (continuous decline).

How Futures Enable Longs and Shorts

If on the spot market you can only buy an asset, futures contracts open new opportunities. These are derivative instruments that allow you to profit from price movements without owning the asset itself.

In the crypto industry, the two most common types are:

• Perpetual contracts — have no expiration date, allowing you to hold a position as long as needed
• Settlement contracts — upon closing, you receive not the actual asset but only the difference in value, denominated in a specific currency

To open long positions, traders use buy futures (buying in the future at a fixed price), and for shorts — sell futures (selling under the same conditions). An important point: on most platforms, traders pay a funding rate every few hours — this is the difference between the spot and futures market prices.

Hedging: Insurance for Your Positions

Hedging is a risk management strategy directly related to longs and shorts. The idea is simple: open opposite positions to mitigate losses if the market moves unfavorably.

Suppose you bought 2 bitcoins expecting growth but do not exclude a decline. Simultaneously, you open a short on 1 BTC. This creates a safety cushion.

If Bitcoin rises from $30 000 to $40 000:

• Profit = (2-1) × ($40 000 - $30 000) = $10 000

If the price falls from $30 000 to $25 000:

• Loss = (2-1) × ($25 000 - $30 000) = -$5 000

Hedging would reduce losses from $10 000 to $5 000. However, the “insurance cost” is high — you also halve your potential profit from growth.

A common mistake among beginners: opening two identical opposite positions leads to mutual neutralization of profits and losses, and commissions turn the entire operation into a loss.

Liquidation: The Main Risk When Using Borrowed Funds

Liquidation is an automatic forced closure of a position that occurs when trading on margin. The mechanism triggers during a sharp price drop when the collateral (margin) becomes insufficient.

As the critical point approaches, the platform sends a margin call — an offer to deposit additional funds. If not done, the position will be automatically closed once a certain price level is reached.

To avoid liquidation, traders should:

• Practice proper risk management
• Monitor the size of their collateral
• Keep track of multiple open positions simultaneously

Leverage: The Double-Edged Sword of a Trader

Most traders use leverage (borrowed funds) to maximize profits. But it’s important to remember:

Pros: Long and short positions with leverage can potentially generate significantly higher returns on the same investment amount.

Cons: Risks increase proportionally — losses can be just as substantial, managing positions becomes more complex, and trading fees grow.

Practical Differences in Usage

Long positions:

• Simpler and more intuitive
• Closest to regular asset purchase
• More predictable than shorts
• Work better in an uptrend

Short positions:

• Require better understanding of mechanics
• Less intuitive for beginners
• Price declines are usually sharper and faster
• Require more careful management

Final Conclusions

Longs and shorts are two sides of the same coin, enabling traders to profit regardless of market direction. Based on the positions opened, participants are divided into “bulls,” expecting growth, and “bears,” betting on decline.

In the crypto industry, futures contracts and other derivatives are used to open these positions. They provide access to shorts (which is impossible on the spot market), allow working with leverage, and open doors to hedging.

However, using these tools involves not only the potential for profit but also real risks. Liquidation, fees, the complexity of managing positions — all require experience and discipline. Longs and shorts are powerful tools, but in the hands of an inexperienced trader, they can quickly lead to loss of funds.