Definitions of Long, Short, Bullish, and Bearish
Meaning of Common Trading Terms
Trading has a language of its own. If you're starting out, long, short, bullish and bearish are trading terms you'll hear frequently. These words are important for effectively communicating with other traders, and for describing market opinion. Understanding these terms also means you're potentially on your way to making money whether the price of an asset rises or falls.
Long is like "buy." If you're "going long" in a stock, it means you're buying it. If you're already long, then you bought the stock and now own it.
In trading, you buy or go long something if you believe its value will increase. This way, you can sell it for a higher value than you paid for and reap a profit.
Assume Suzy goes long 100 shares of ZYZY stock at $10.00, costing her $1,000. Several hours later she sells the stock for $10.40 per share, collecting $1,040 and making a $40 profit. If the price moves down to $9.50, she has a loss of $50 ($0.50 x 100 shares).
Bull or Bullish
If being long or buying are actions related to a belief that an asset will rise in value, then being bullish is the belief. To say "I'm bullish gold" means that I believe the price of gold will rise.
Being a bull can represent an opinion/belief, or an action. Someone who's bullish may actually go long the assets they're bullish in, or they may simply have an opinion that the price will rise, but not make a trade based on that opinion.
The term "bull" or "bullish" comes from the bull, who strikes upwards with its horns, thus pushing prices higher.
A bull market is when an asset's price is rising—called an uptrend—typically over a sustained time period, such as months or years.
Bullish, bull and long are used interchangeably. For example, instead of saying "I am long" a trader may simply say "I am bullish." Both statements indicate this person believes prices will rise.
Short and Shorting
Most people think of trading as buying at a lower price and selling at a higher price. Traders can also sell at a high price and buy back at a lower price. Being short, or shorting, is when you sell first in the hopes of being able to buy the asset back at a lower price later.
It is a strange concept for many people to grasp, but in the financial markets you can buy then sell, or sell then buy. If you've done the latter, then you're short the asset.
You'll also hear the term short-selling. This is the same as shorting.
In the futures and forex market, you can short any time you wish. In the stock market, there are more restrictions on what stocks can be shorted and when. When you hear someone say they are shorting something, it means they believe the price will go down.
Assume Suzy shorts 100 shares of ZYZYZ stock at $10.00. Since she sold first, she'll receive $1,000 into her trading account, but her account will show negative 100 shares. The negative share balance must be brought back to zero at some point by buying back the 100 shares.
An hour later she buys the stock back at a price of $9.60 per share at the cost of $960. Since she initially received $1,000, buying the shares back for only $960 gives her a $40 profit. If the price moves up to $10.50, she is losing $50 ($0.50 x 100 shares).
Bear or Bearish
Being bearish is the belief that the price of an asset will fall. A person with this belief may choose to act on it or not.
If the trader does act, they may sell shares they currently own, or they may go short.
To say "I'm bearish on stocks" means I believe the price of stocks will decline in value.
The term "bear" or "bearish" comes from the bear, who strikes downward with its paws, thus pushing prices down.
Acting on a bearish or bullish opinion should only be done based on a well defined and tested trading strategy.
A bear market is when an asset's price is falling—called a downtrend—typically over a sustained period of time such as months or years.