2023-09-16 11:41:27
Beginner's Guide to Trading: Understanding Longs, Shorts, and Leverage
Going Long - When you buy an asset expecting its price to rise, you're going long. The goal is to sell at a higher price later. But beware, if the price drops, you're in for a loss.
Going Short - This is the opposite of going long. You borrow an asset to sell, hoping to buy it back cheaper later. If the price goes up instead, you're stuck buying it back at a higher cost, resulting in a loss.
Understanding Leverage - Leverage allows you to amplify the size of your trade by borrowing money. A 2x leverage on a $100 trade effectively makes it a $200 trade. This can boost your gains, but it also magnifies your losses.
The Dark Side of Leverage - Here's where caution is crucial. If the market moves against your leveraged position, you can lose more than your original investment. For example, if you use 10x leverage on a $100 trade, a 10% market drop means you lose your entire $100, not just the $10 you would lose without leverage. In some cases, losses can even exceed your initial investment, leaving you in debt to the broker.
Risk Mitigation - To mitigate these risks, use 'Stop Loss' orders. This will automatically exit your position at a predetermined price level, limiting your potential losses.
Due Diligence is Key - No amount of tips can replace good old-fashioned research. Know your asset, know the market, and base your decisions on solid information rather than hype or fear.
Here ya go ! @AdmBCPS
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