Why a Long Position is More Profitable than a Short Position: Long or Short?

In the world of investing, long positions and short positions are fundamental strategies for trading assets. A long position involves buying an asset with the expectation that its price will rise, while a short position involves selling an asset with the expectation that its price will fall. These strategies can be applied to various assets, including cryptocurrencies and stocks, and are also used in derivatives like futures and margin trading. This article will discuss why long positions can be more profitable than short positions and address the risks associated with futures and margin trading.

1. Market Structure and Long-term Upward Trend

Most stock markets tend to rise over the long term. This is due to factors like economic growth, increasing corporate profits, and inflation, and similar trends can be observed in cryptocurrencies. For instance, assets like Bitcoin have historically shown a long-term upward trend. This structural characteristic of the market is one reason why long positions can be advantageous. While short positions require the asset's price to decline to generate profit, there are relatively fewer assets that experience long-term declines, making the success rate of short positions lower.

2. Limited Losses and Unlimited Profit Potential

Since most assets exhibit long-term upward trends, long positions generally have limited potential for loss. In terms of profit, there's theoretically no upper limit, as the asset price can continue to rise indefinitely. For example, a stock or cryptocurrency purchased at $10 could potentially increase to $100, $1,000, or even higher.

In contrast, short positions carry a higher risk of loss due to the long-term upward trend of assets, and these losses can be unlimited. However, the maximum profit in a short position is limited to the price of the asset dropping to zero, which equates to 100% of the initial sale price. For instance, if you shorted a stock at $50 and it dropped to $0, your maximum profit would be $50. Even with leverage, it's challenging to achieve significant profits in short positions.

3. Psychological Comfort

Long positions generally provide investors with a sense of psychological comfort. Holding an asset allows investors to weather temporary market downturns with the expectation of long-term gains. On the other hand, short positions can create continuous psychological pressure if the asset price rises, making it difficult for investors to maintain their short positions for an extended period.

Risks of derivatives, Futures and Margin Trading

Futures and margin trading are strategies that use leverage to increase the profit with asset price fluctuations. These strategies can be applied to various assets, including cryptocurrencies and stocks, allowing investors to gain or lose significant amounts based on small price movements.

However, these trades come with high risks. When leverage is used, and the market moves against the investor's expectations, losses can be substantial. Particularly, in a long position where the asset price drops or a short position where the asset price rises, investors can incur losses that exceed their initial investment, potentially leading to asset liquidation or margin calls.

The cryptocurrency market is especially volatile and does not inherently create value, making futures and margin trading in this market particularly risky. In reality, those who profit most are the wealthiest individuals, the exchange services, and the referrers and freelance workers who promote these exchanges, while individual investors risk losing all their assets.

I do not recommend investing in cryptocurrencies and derivatives like futures, or margin trading. The responsibility for financial investment lies with the investor, and if you must invest, it is better to engage in spot trading of stocks that create value.