Stock trading with Long and Short: Which strategy is truly profitable?

Many beginners think: Making money only works if prices go up. This is a common misconception. Buying a stock long and speculating on price drops with a short are both legitimate ways to profit from the market. But which method suits you better? Here comes the honest answer.

The Basic Principle: Long vs. Short in a Quick Check

Long: Buy stock → wait → sell at a higher price. You profit when the price rises.

Short: Sell stock (that you borrow) → buy back → return at a lower price. You profit when the price falls.

Two opposing strategies, two different opportunities. But the risks differ significantly.

What happens in practice?

Long Position: The intuitive investment

If you build a long position, for example, buy a stock for €150. Later, sell it for €160. Profit: €10. Sounds simple – and it is.

The good news: Your maximum loss is limited. In the worst case, the stock drops to €0. You can’t lose more than your invested amount.

The bad news: You don’t make money if prices fall. In bear markets, you sit on the sidelines.

Short Position: More risk, more opportunities?

With a short position, it works differently. You borrow a stock from your broker (for example, at a price of €1,000), sell it immediately, and hope the price drops. If the stock then falls to €950, you buy it back and return it to the broker. Profit: €50.

The problem: The price can rise infinitely. If the stock climbs to €2,000, you have to buy it back at that price—loss of -€1,000. And that’s just the beginning. Theoretically, there is no upper limit to your losses.

The key differences

The leverage effect in short positions

This gets critical: With short positions, you usually work with margin (leverage). That means you don’t have to deposit 100% of the stock’s value – only, for example, 50%. The rest you borrow from your broker.

Sounds like a deal. But beware: Leverage works in both directions. A small price increase can lead to large losses. With a 2x leverage, a 5% price increase results in a -10% loss for you.

Conclusion on leverage: Gains can double – but losses too.

How to protect your positions

Whether long or short – without protective measures, you can lose money quickly.

Stop-Loss Order: Set a price. If the stock drops below this, your position is automatically closed. This limits losses.

Take-Profit Order: When the price reaches a certain profit level, the position is automatically sold. Profits are secured.

Trailing Stops: The stop-loss adjusts automatically to the current price. This allows you to lock in profits automatically and limit risks at the same time.

Diversification: Don’t invest everything in one stock. Multiple positions across different assets reduce fluctuations.

When to use which strategy?

Open a long position when:

• You expect a price increase (based on fundamentals or technical signals)
• The market is in an uptrend
• You can think long-term and have patience
• You are a beginner and prefer lower risk

Enter a short position when:

• You expect falling prices
• The market appears oversold or overbought
• You are an experienced trader with strict risk management
• You want to hedge an existing portfolio (Hedging)

The truth: Is there a best strategy?

No. The best strategy depends on three factors:

1. Your market expectation: Do you expect rising or falling prices? Based on which data?

2. Your risk profile: How much can you lose without trembling? Short positions require nerves of steel.

3. Your experience: Beginners should start with longs. Shorts require discipline and knowledge.

Most successful traders use both. They go long in bull markets and use shorts for hedging or specific situations. But for starters: learn to manage long positions before trying short.

Key takeaways

• Long and short are two sides of the same coin. Only the direction differs.
• Long is less risky – maximum loss is your stake.
• Short offers opportunities in falling markets – but with significantly higher risks.
• Leverage amplifies everything – gains AND losses.
• Protection measures are not optional – they are essential.
• There is no one-size-fits-all solution. Your strategy must match your expectations and risk profile.

Whether you go long or short – the most important thing is to understand what you are doing. Trading unprepared is the fastest way to total loss.