You have two options in the stock market. To go long or short. You can think of it as buying and selling.
An investor that decides to buy a stock is considered a long position. It is considered long because you have bought and own shares in a company. Conversely, an investor that sells a stock is referred to as a short position because they owe stock to another investor.
A long position would be considered bullish because it assumes the stock will increase in value. However, a short position would be bearish since it presumes the stock will decrease in value.
It seems simple to determine when to go long or short on a stock, but it is one of the hardest decisions of investing.
An investor may buy or go long on a stock if they believe it’s price will rise in the near future and sell or short the stock if they believe the opposite to be true. An increase in profit might indicate the stock’s price will rise, while a company firing their CEO might explain why investors are selling. Attempting to understand the context and news around a company can help you determine when to go long or short.
A stock’s price is based on supply and demand. This means that a stock’s market price is what investors assume to be a fair price for a fraction of ownership in the company. More selling of a stock may cause the stock's price to decrease, while more buying of a stock could have the opposite effect.
By having more sellers than buyers, the stock’s price will drop, and the opposite will occur when there are more buyers. For example, if there are only 100 shares being sold, but 200 people want to buy a share, then the sellers can essentially sell the share at a higher price. In the real world, this occurs on much larger scales and is calculated instantly by computers.
Alright, that was short, but I think you get it. Let’s jump into realized and unrealized gains now. Hopefully this next one will not be too long.