Long position is understood as a purchase of a financial asset with the anticipation that it may rise in value in the future.
In English it is known by the term Long or Bullish. On the contrary, taking positions to sell or contrary to long positions is known as short positions.
This term has lately been associated with speculation and short-term trading, where traders seek to maximize their profit with technical and fundamental criteria or other types of techniques. The investor enters a long position through a market member such as a broker, a financial institution or a securities agency, processing the purchase order by phone or through an investment platform.
The long position is associated with downward movements in interest rates that favor investors' appetite for riskier assets. It is very common to hear at the meetings of the Open Committee of the US Federal Reserve (FOMC) that its members are dovish (in favor of interest rate cuts) or hawkish (in favor of interest rate increases).
A dovish monetary policy will favor investment in risky assets, as banks will offer unattractive returns on their deposits and, as a consequence, investors will choose to seek better returns in the market, through investment in equities.
Long position in financial markets
Long positions can be entered in the following markets:
- Cash: In this market it is possible to introduce purchases. However, short positions cannot be traded as delivery and settlement occurs at the time of trading. This market does not take into account the evolution of future interest rates or future dividend payments.
- Derivatives: In this market it is possible to enter long and short positions. It is associated with speculation, since it tries to predict, among some of the many factors that intervene in its analysis, the evolution of future interest rates, future dividend payments, sensitivities, volatilities, GDP evolution, or the balance of a company.
- Currencies: In this market it is also possible to enter long and short positions. Investors speculate on the exchange rate and the difference in future interest rates between currencies, receiving or paying financing based on the difference between the opposing currencies and, therefore, increasing or decreasing the investor's profitability by maintaining their positions. overnight. The business that speculates on the differences between swap or financing cost between currencies over time is known as carry trade.
Suppose an investor who believes that Bayer shares are going to rise because he has learned that he is going to buy a patent on a drug that immediately eliminates headaches.
To do this, it will go to the stock market to make purchases or long positions on the security, in order for its price to rise and to obtain benefits.
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