Long Position
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A long position is a position in which we generally benefit when the price of the traded instrument rises. In a simple stock purchase, we buy shares first and later sell them to close the position.
Basic Mechanics
If we buy 100 shares at 50 and later sell them at 55, the price movement is 5 per share before costs. If the price instead falls to 45, the price movement is negative by 5 per share.
The maximum loss on a simple fully paid stock position is generally limited to the amount invested, although the exact risk depends on the instrument and account structure.
Key Terms
Long position, entry, exit, unrealized profit/loss, realized profit/loss.
Knowledge Check
- What does a long position generally benefit from?
- What happens to a simple long stock position when the stock price falls?
- Why must we consider the instrument before assuming a particular risk limit?
