One of the most powerful features of CFD and forex trading is the ability to profit from both rising and falling markets. This is achieved through two basic position types: going long and going short.
What Does ‘Going Long’ Mean?
Going long means buying an asset with the expectation that its price will rise. If you open a long position and the price increases, you profit from the difference. This is the traditional direction most new investors are familiar with.
What Does ‘Going Short’ Mean?
Going short means selling an asset you don’t own, with the expectation that its price will fall. If the price does fall, you can close the position by buying it back at the lower price, profiting from the difference. If the price rises instead, you incur a loss.
KEY TAKEAWAY In CFD trading, you never physically own the asset, so opening a short position is as straightforward as opening a long one.
A Practical Example
Suppose gold is trading at $2,300 per ounce and you believe it will rise. You open a long CFD position. If gold rises to $2,330, you profit from the $30 difference (before spreads and costs). If you had instead believed gold would fall and opened a short position, you would profit if the price dropped to $2,270.
Why This Flexibility Matters
- Markets don’t only move in one direction — being able to trade both ways means more opportunities
- You can hedge existing positions by shorting a correlated instrument
- Short positions can be used to profit during economic downturns or bearish sentiment
- It removes the restriction of only being able to profit in bull markets
Risk Considerations
Both long and short positions carry risk, and losses can occur if the market moves against your position. Short positions can theoretically carry unlimited risk since there is no cap on how high a price could rise, which makes risk management tools like stop-loss orders particularly important when shorting.
Risk Warning: CFDs and forex trading are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how these products work and whether you can afford to take the high risk of losing your money. Past performance is not indicative of future results. This article is for educational purposes only and does not constitute investment advice.
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