Long And Short Positions In Futures Trading
There are basically two types of position in the futures trading known as the long and short positions of futures. These two positions are explained in detail in the below given content. Read about these two terms the long position in futures and the Short position in futures to know more. If you have a clear understanding about these long and short positions of futures, it will add to your knowledge about overall futures trades and this will help you in becoming a successful futures trades.
A long position in futures implies the buying of futures contracts in case a trader feels that there will be rise in prices in coming future. The trader who purchases the futures contracts enters into a long position in futures upon buying a contract. The long positions in futures are profitable if the underlying futures contract increases in price during the holding period. Selling the same quantity and contract-month that one initially purchased offsets a long position. The long positions in futures are typically used by consumers to hedge against rising prices and initiated by speculators in anticipation of higher prices.
A short position in futures implies the selling of the futures contracts in case a trader anticipates that the prices will be decreased. The trader enters into the short position by selling a futures contract. In the futures market, unlike the stock market, it is just as easy to establish a short position as a long position. The short positions in futures result in profits if the underlying futures contract decreases in price during the holding period. Purchasing the same quantity and contract month that you initially sold offsets your short positions. If the resulting purchase price is less than the original sale price, a profit is achieved. However, if the resulting purchase price is greater than the original sale price, a loss is incurred. Commodity producers who wish to avoid potentially lower prices as a short position in futures increases in value and prices decline usually establish short positions.