Differences with buy and long,or sell and short




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Differences with buy and long,or sell and shortDifferences with Buy and Long, or Sell and Short

You’ll notice sometimes an investor or trader may use the word “buy” while others use the word “long.” What’s the difference? It could be very little, or a lot, all at the same time.

Buying a stock (or an option) is straightforward. It’s the resulting position which might not be obvious. As you probably have heard, Wall Street is a unique place where you can sell things you don’t already own. This ability is what creates the nuance between “buy” and “long”. For example, say you buy 100 shares of Ginormo Industries, Inc. Then you decide to exit your position. So you sell your 100 shares. You were long 100 shares, then you closed your long position, getting rid of your shares.

Consider another example: you are short 100 shares of Ginormo Industries and then you buy 100 shares of the same stock. In effect, the two transactions balance each other out. After your buy order is filled, your short position is covered. In this case a buy order did not result in a position in your account. Herein lies the distinction between long and buy. “Long” not only conveys the action taken, but also current ownership, and therefore, it is much more descriptive than “buy”.

The same distinctions can apply to “selling” versus “short”. “Sell” refers to selling something you own. “Short” conveys selling something you don’t currently own, such as when selling a stock or option short. The term “short” also implies a liability exists. Think of this as similar to when you split the check at your favorite restaurant with your friend, but you are “short” five bucks. You may also see the term “write” to refer to selling something not owned, but this word is usually reserved for shorting options.

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