Long Position

What is a Long Position?

An investor who takes a long position is buying an asset in the hope that its value will increase over time. These individuals are said to hold a bullish view.

Key Takeaways

A long position means buying an asset that is expected to rise in value.
It differs from a short position that benefits when a stock price goes down.
There are no guarantees that a long position will generate a profit for an investor.
Long positions can give investors access to the benefits of company part ownership, including dividends and voting rights at annual meetings.
A long call option enables investors to hopefully buy a stock at a cheaper price in the future.

Types of Long Position

There are different types of long positions. Here we outline some of the terms you may encounter:

Trading long positions

The most prominent long position is in trading. When investors ask what a long position in stocks is, this will be the answer. However, investors can use ‘long’ in different ways. In some cases, it simply refers to the length of time an investment is held.

Long call options

This is when an investor has the right to buy a stock at a strike price in the future. There is a very clear benefit to this arrangement: it enables the investor to effectively plan ahead to purchase a stock at a cheaper price.

Leveraged long position

This is when an investor borrows cash to buy larger positions in securities, even if you don’t have the required funds. This has the potential to increase returns. However, there is a downside. If the security falls in value, then your overall losses will also be amplified. ?

Unleveraged long position

Describes the scenario in which an investor uses their own resources to fund the trading strategy without having to borrow anything.

Components of Long Position

To take advantage of a long position in investing, these are the key components required:

Investment capital

You will need the funds to make the purchase of a particular asset. This can be from your own resources (unleveraged position) or from borrowing (leveraged position).

The available security

The chosen asset will need to be available for you to buy. Companies may offer different share classes, so you’ll have to check what you can purchase.

A trading account

To complete the transaction, you’ll need access to a platform on which you can buy and sell. The good news is that there are plenty of options.

Long Position Examples

Let’s take a real-life example of a successful long position.

If an investor had bought a share in Spotify, the music giant, at the beginning of August 2023, it would have cost them $145.42.

However, the value of that single share had risen to $330.85 as the market closed on August 2, 2024, representing a 128% increase.

This means the investor would have comfortably more than doubled their original investment and would be sitting on a bumper profit of $185.43.

Risks of a Long Position

Of course, there are always risks with long positions. The most obvious is that the shares bought in the hope that they’d rise end up doing the opposite.

This could mean the value of your holding is now worth less than what you paid for. Therefore, if you sell at this point, therefore, you would be crystallizing a loss.

Sometimes, the risks aren’t quite as drastic. For example, the long position may just be taking a bit longer to come to fruition than initially expected.

Long Position Pros and Cons

Here are the pros and cons of taking a long position in investing.

Pros

The hope is that a long position will result in the stock price rising over time and benefiting the investor’s overall portfolio.
Possibility of enjoying stock ownership rights such as receiving dividends and being able to vote at the company’s annual meeting.
A positive feeling about being part of a company’s development and future success.

Cons

There are no guarantees it will make a profit. A long position could end up resulting in the share price falling and the investor making a loss.
You won’t make a profit if the share price falls, which would be the case if you’d taken a short position instead of a long one.
A long position may be affected by factors outside of the individual company’s control, such as problems elsewhere in the sector or interest rate movements.

The Bottom Line

The long position definition is buying an asset in the hope that it will rise in value. This philosophy is at the core of how most investors operate.

The best example is when they buy shares in individual companies. Their motivation will be for the price of their holding to rise over time. However, long positions aren’t guaranteed. The investment thesis could take longer than expected, or the company may not deliver on its goals, causing the share price to fall.

There are also long call options. These enable investors to have the right to buy a stock at the strike price in the future.

The hope is that they will be able to purchase the stock at a cheaper price than its current rate, which will enable a profit to be generated.