Central to the range of available trading strategies is whether a market participant is only allowed to go long, like for example, long only mandates, or whether they're able to take long and also short positions. Let's explore the difference between long and short positions. They reflect distinct viewpoints on an instrument's future price movement. We start with long positions. The basic idea going long on an asset implies purchasing it with the anticipation of a price increase. It's a bet on the asset's price appreciation. A profit in a long position is realized when the assets price rises post-purchase, allowing for a sale at a higher price.

The risk involves a potential decline in the assets price. If sold at a lower price than purchased a long position results in a loss. Typically, however, the loss is capped since, for example, the price of a stock can't drop below 0. A long position might also come with ownership benefits holding a long position in stocks, for example, may grant dividends and voting rights depending on the stock type. So how does a short position compare? The basic idea, a short position means borrowing an asset to sell it, expecting to buy it back later at a decreased price to return it to the lender, thereby profiting from the price difference. If the asset's price falls after selling the borrowed asset, it can be repurchased at a reduced price with the spread between the sale and repurchase price as a profit.

The general risk in short selling is that in the case of a price increase, the asset might have to be repurchased at a higher price leading to a loss. Losses of a short position are potentially unlimited since the assets price could theoretically rise without bound.