What Does Long & Short in the Stock Market Mean?

When an investor places an order with her stockbroker to buy shares of stock or to carry out some other type of transaction, she is said to be taking a position in the market. Her market position can be either long or short. One way of thinking about this is that the investor makes money with a long position if the stock price goes up. If she takes a short position, she’ll make money if the share price falls.

 

 

Going Long, Going Short

The investor’s market position is defined in relation to her broker. If she’s long in a stock, it means she owns the shares in her brokerage account. If the stock goes up, she can sell the shares and make a profit.

If she has a margin account, meaning one that allows her to borrow money or securities from the broker, she can sell a stock short. Selling short means an investor sells shares she doesn’t own.

She must buy and deliver the shares at some point in the future. In order to insure the shares will be available to complete the short sale, she must borrow them from her broker at the time she starts the short sale. The shares therefore are in her account, but they actually belong to the brokerage firm.

 

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