Stock Markets: All About Long and Short Positions

An investor can ideally take two positions in a stock: long and short. In the stock market, in case an individual purchases shares of a particular company and holds on to it expecting a rise, it is regarded as a long position. 

However, if the individual is bearish about their future and sells them before these stocks are being transferred in their name, it is referred to as a short position.

In a scenario where an investor shorts a stock, they tend to borrow the share in a margin account from a brokerage entity or firm and sell them.

Generally, long and short positions are related to the derivatives or Futures & Options (F&O) segment, where the trading occurs in the present for future delivery of shares.

An individual as a trader buys a future contract of any index or stock while anticipating a price rise in the future; they are stated to have built a long position.

On the other hand, if an individual as a trader sells a futures contract of any index or stock in anticipation of a price dip in the future, then they are stated to have built a short position.

In F&O, an investor or trader can choose to call or sell when they are bullish about a stock or index and expect the price to witness a spike in the future. Therefore, investors tend to opt for the call option in a long position.

Similarly, those opting for a short position tend to zero in on the put option. A put option in the F&O segment is chosen when an investor is not bearish about any particular stock.

In this regard, more long positions in the stock market underline that the outlook is optimistic, and expectations are rife about the indices going up. On the other hand, a spike in short positions highlights that the market sentiment is bearish.