What it means
When you buy shares, bonds, currency or a commodity, you are long that asset. If the price rises, you profit, and if it falls, you lose.
This is the everyday meaning, and it is what most people do when they invest. Traders use the word to describe their exposure, which means how much a market move affects them.
A trader who is long 1,000 shares gains $1,000 if the price rises by $1 and loses $1,000 if it falls by $1. Being long a futures contract means agreeing to buy at a set price in the future, and being long a call option means holding the right to buy.
A long position has a limited downside when the asset is bought outright, because the price cannot fall below zero. The most you can lose is the amount invested, while the potential gain is unlimited in theory.
Long positions funded with borrowed money, called leverage, can lose more than the original stake if the loan must be repaid in full. The word also appears in other expressions.
A firm can be long a currency if it has more of it than it needs, and a company can be long on inventory if it holds more stock than it can sell. In each case, it means holding more of something than is needed, so that the holder benefits from a price rise and is hurt by a fall.
Distinguishing long from short matters for risk. A portfolio that is fully long moves up and down with the market, while a portfolio that combines long and short positions can reduce its exposure to broad market swings.
Always check what a fund's description means by long, short and net exposure. Records matter for tax and reporting.
Shares held for investment are carried at market value or cost depending on the accounting policy, and gains are usually taxed when the asset is sold. Traders should keep a record of purchase dates and prices.
In practice
Real-world examples.
Example
A pension fund buys $10,000,000 of government bonds and holds them for income. It is long the bonds and benefits if interest rates fall and bond prices rise. A rise in interest rates would lower the value of its holdings. The fund manager reviews this risk every quarter.
Example
A jewellery manufacturer buys 200 ounces of gold to cover future production. It is long gold until the metal is used. If the gold price rises, the company's inventory is worth more. If it falls, the company may have to write down the value of the stock.
Example
A currency trader buys euros against the dollar, expecting the euro to strengthen. She is long the euro, and she makes a profit if the exchange rate moves in her favour. She sets a stop-loss order to limit the loss if she is wrong. The order sells automatically at a set price.
Formula
Calculation
Profit on a long position = (Selling price - Purchase price) x Number of units
An investor buys 500 shares at $40 each, spending 500 x $40 = $20,000. If she sells at $46, her profit is ($46 - $40) x 500 = $3,000, a return of $3,000 / $20,000 = 15%. If the price falls to $35 instead, the result is ($35 - $40) x 500 = -$2,500, a loss of 12.5% of the amount invested. Her largest possible loss is the $20,000 she paid, which would happen only if the shares became worthless.Case study
Seen in the real world.
Ironwood Capital is an illustrative, fictional investment partnership that took a long position in a mid-sized electronics company. It bought 100,000 shares at $30 each, a total of $3,000,000, because it believed new products would raise earnings.
For a year, the share price stayed flat, and the partners debated whether to sell. Then the company reported strong results, and the share price rose to $39. Ironwood sold half the position, realising a profit of 50,000 x ($39 - $30) = $450,000.
It kept the remaining 50,000 shares, still long, with a stop order in case the price dropped sharply. The story is illustrative, but it shows the basic idea: a long position makes money from a rise in price and requires patience and a risk plan.
Watch out
Common mistakes.
- Assuming a long position cannot lose much, when a stock can lose most of its value.
- Confusing being long with holding for a long time, which refers to the holding period.
- Forgetting that a long position in a borrowed-money account can lead to losses larger than the original investment.
Questions
People also ask.
What is the opposite of long?
Short, which means selling an asset you do not own in the expectation that its price will fall.
Can you be long a currency or a commodity?
Yes, you can be long anything that has a price, including currencies, commodities, bonds and derivatives.
What is the maximum loss on a long share position?
If you pay in full, the maximum loss is the amount invested, but with borrowed money it can be larger.
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