The essence of trading in any field is to buy low and sell high. In stock trading, everything is the same. Many strategies for making money on quotes have been developed, but each of them is based on the ability to buy or sell at the right time. WL Company will talk about the main points of each option, and also give some tips for choosing.

Basic trading strategies according to WL Company

The main financial strategies applied to a market asset – a currency, a security or a commodity – are described by the terms long and short. Wl Company suggests that they describe a trader’s position in relation to the value of an asset.

Long (long position)

A long transaction (long position) is the purchase of an asset with the purpose of further resale at the best price after some time. A trader seeks to sell an asset when the market price is significantly higher than the purchase price. In the long term, the value of the asset can rise with the market. WL Company reminds that traders who play long positions are called “bulls”. If there are more and more of them, the market as a whole grows.

Wl Company about short (short position)

A short position is a transaction with the intention of making money on a decrease in the value of an asset. The asset does not become the property of the trader, but is borrowed from the broker. The trader sells the asset borrowed from the broker at the current market price. After the price falls, the trader buys the asset back and returns it to the broker, making a profit from the price difference.

According to experts at WL Company, short positions can be more costly for a trader. In addition to the standard commission, he also pays the broker a daily additional commission. These payments reduce the potential profit, so the trader is interested in quickly closing the short. Brokers can forcefully close a short in two cases:

• upon the date of closing the register of shareholders for receiving dividends
• when there is a threat of the trader’s account going into negative territory.

Such forced closure insures all parties to the transaction against losses. Market participants who take short positions are called bears. Their predominance means a general decline in the market.

Which strategy should you choose?

WL Company reminds that when opening any transaction, a trader takes a risk in any case – the forecast may not come true, even to the point that the price goes in the opposite direction. Long is based on long-term forecasting of the development of a company or industry and requires patience on the part of the investor. This is not suitable for everyone; some may not always be in the mood to wait and would prefer to open short positions.

According to research by WL Company. A short trade is a riskier trade than a long trade because it will potentially bring unlimited losses. They include both daily payments to the broker and the probability of an increase in the value of the asset, contrary to the trader’s forecast. In this case, the profit margin in a short position is limited by the fall in the value of the asset to zero, while in a long position the value of the asset can rise significantly above the original price.

Therefore, WL Company does not recommend that beginners participate in short transactions, and traditional investors prefer long positions, because they allow them to make a profit without risking all the funds, but only those spent on purchasing an asset on the exchange.

A few recommendations from WL Company

WL Company gives the following advice: if an investor still decides to take a short trade, then he should use stop losses – set the broker to automatically close the position when a certain level of losses is reached. This will limit large losses and prevent them from becoming catastrophic.

There are also strategies that involve the simultaneous presence of both types of transactions. An investor, having both long and short positions in his portfolio, can hedge risks associated with changes in the value of assets. But this is done by fairly experienced participants who know the historical data of past years and what to do if harbingers of a crisis or preconditions for growth appear.

So, according to WL Company experts, both stock trading strategies require good analytical skills, forecasting, financial control and constant training in this direction. Read our blog dedicated to trading! Read a short review about us here.