Futures: Long vs Short explained — AAX Academy
Users on AAX can select between spot or futures trading. In this tutorial, we look at the trading terms long and short, and how it relates to futures trading.
Futures trading is an exciting way to trade but could be complex for new users. Unlike spot trading, you do not necessarily own the coin you are trading futures for. Rather, you use some asset for collateral — for example, USDT or BTC — to effectively place a bet on the price of a certain coin.
‘Short’ and ‘long’ are popular phrases used by traders and investors. In the context of futures trading, short or long refers to setting a position based on the price direction of an asset.
If you anticipate an asset will rise in value, you open a long position or you open a short position if you anticipate a fall in the price of a cryptocurrency.
What is Short in Futures Trading?
In simple terms, to go short when trading futures means speculating that an asset’s price will drop. You will make profits, provided the price falls during the period of the contract, and you close your position on time.
Technically, going short means trading a futures contract that derives its price from an asset, with the condition that you will profit from the decline in the price of the underlying asset.
The total profitability of the trade is usually proportionate to the total size of the price reduction. Opening a short position can also be referred to as being bearish on an asset.
For instance, you can short Bitcoin on AAX using futures contracts if you expect the bitcoin price to fall. You can do so with BTC as your collateral, but AAX also offers USDT settled futures contracts.
What is Long in Futures Trading?
In plain language, going long when trading futures means speculating that an asset’s price will increase. You make a profit from the trade if your speculation of the direction of the price is accurate.
Opening a long position can also be referred to as being bullish on an asset.
How To Open A Short or Long Position on AAX
Opening a short or long position on AAX is simple. Click on the ‘Futures’ drop-down menu at the top of the homepage and select BTC settled or USDT settled futures.
The difference between the two is the currency used in trading, BTC settled futures require you to have bitcoin in your wallet. On the other hand, USDT settled futures need you to have USDT in your wallet.
In this example, we will select USDT settled futures and trade the BTC/USDT futures contract.
On the trading interface, you can place your order on the right panel of your screen. Check the price of the contract, enter the amount of USDT you wish to spend on the contract.
Click the ‘long’ or ‘short’ button to initiate the trade. Depending on what you select, you will see a pop-up with a detailed description of your trade terms.
Review the terms and click ‘Confirm’ to purchase the contract.
There are other aspects of trading futures that you should understand to have the best trading experience. Check out our other articles in this series:
- Leverage explained (Coming soon)
- Adjusting your leverage (Coming soon)
Originally published at https://academy.aax.com on July 20, 2020.
