Cryptocurrency long position meaning & use cases with examples
A cryptocurrency trader who opens a long position has great faith in the asset that they are buying into. When they purchase a coin or a token in an effort to go long, it means that they believe it has the potential to rise in price.
When traders say they are taking a long position, it’s meant to imply buying. This can be used for a variety of different strategies, and you don’t have to hold forever to be long on a cryptocurrency. You could even go long as a day trader if you wanted to.
Can you give an example of a cryptocurrency long position?
Jimmy believes that the market has finally bottomed out on a crypto token he likes. He’s done his research, and it looks like the chart volume is growing. There’s also some very good news on the horizon from the development team.
The support levels are steady, and he thinks that soon the price of his asset could produce some interesting profits. He decides to take out a long position. He places an order for an attractive price and acquires his desired number of tokens.
He waits for a few weeks, and it looks like he was right! The price of the token begins to climb with the announcement, and the value of the asset starts climbing. He sees signs that things may be heading downward, and he sells, taking a profit. If he wanted to be a little braver next time he could trade on margin, which would allow him to take out a larger position with a loan from the exchange.
What is the duration of crypto long positions?
There’s no real time limit on a long position. You could hold it as long as you want. Even day traders take cryptocurrency long positions, as they are using the term interchangeably with buying. If you are an active trader, then you would likely go long for a few weeks or months to capitalize on the news, market trends or other data which would lead you to believe the price of the asset in question would go up.
However, if you are trading on margin you should keep in mind that you will owe interest on the coins you are borrowing. You’ll need to take the length of time you’ll need to hold into account when calculating your potential profits.
If you’re buying with cash, however, the only downside is having your capital locked up for a prolonged period of time. For those looking to wait a year or more for their coins or tokens to appreciate in long positions, there is, of course, the benefit of a reduced tax rate for doing so. This is a significant saving that may be worth your while if you’re planning a long hold anyway.
When to open a long position?
You should open a long position when you believe the current cryptocurrency market has reached its bottom. While this is difficult to identify, traders can sometimes look for signs of recovery in the market. This could mean that a great deal of positivity is going around in the media or you may also be able to identify it by growing trading volume that could soon raise support levels.
How to open a long position?
Opening a long position is as easy as buying a cryptocurrency. The process is much the same whether you’re doing it with cash or on margin, but with margin trading, you must be much more sure of yourself. Leverage can be very helpful in capitalizing on a good opportunity, but the risk is far greater as well.
When to close it?
You should close your long positions when you believe they have reached their potential. Many traders have set goals in place to close their positions because greed can cause you to miss out on profits.
It’s important to know when to take your profits and be happy with your trades. Waiting too long could result in hefty losses when the market corrects itself and begins to drop again. This is a costly mistake for cash traders but an even more costly one for margin traders.
Are there any risks involved in cryptocurrency long trading?
There are risks involved with any cryptocurrency trade, and longs are no exception. The biggest risk of going long, of course, is that you’ve bought in at the wrong time. If this is true, then your investment will continue to fall and you will lose capital.
If you are trading with borrowed money then this can get dangerous quickly, so you’ll need to make sure you’ve timed the bottom correctly. This is less dangerous with cash trading because there’s no risk of a margin call and you can hold on until the price rebounds if you wish.
What’s the difference between long and short trades?
When a long trade happens you are optimistic about the future price of cryptocurrencies. If you are shorting a position then you are pessimistic about the future of crypto assets.
Both of these trading strategies are useful, and you should learn when to use each one appropriately. There’s a time and place for both. You could even be holding long and short positions at the same time, and use them both as part of your trading strategy.
Long vs HODL
Going into a long position in crypto trading does not necessarily mean that you will be holding forever. A long position can end after a varying amount of time, and it’s subject to many different determining factors. The HODL mentally is much more extreme. These traders hold through the ups and downs and have no plans to exit their positions.
Some of them plan to hold for many years, and some even believe that you should never sell all of your cryptocurrency. However, if you never sell, then you can never take any profits, and HODLing can sometimes lead you to make some bad investment decisions if you’re too emotional about a particular crypto project.