What is Buying and Selling in Trading?
In any form of trading or investing there will traditionally be two types of participants. These are of course the buyers and the sellers. Every market will have both. Depending on what you are hoping to achieve, or where you believe the markets are heading you will choose one of the two as your means of finding an entry into the market.
Those who look to buy or long, in hope the markets will go up in value are known as Bulls. On the other hand, those who look to sell or short in the hope that the markets will go down in value are known as Bears.
Guide how to Buy or Sell a market
Looking for long or short opportunities in 2020? There are many online brokers like eToro which provide interested investors the opportunity to trade volatile markets which are perfect for long or short traders. If you are interested in getting involved in this rapidly moving market, below is the easy process to follow to get started.
Step 1: open a broker account
Step 2: decide your investment level
Step 3: deposit and start trading
What is shorting?
Shorting is the act a trader takes in selling a stock or instrument in the hope that it decreases in value. Traditionally, especially in physical markets, traders or investors did not have the ability to sell without first owning the underlying asset. However with the introduction of digital brokers like eToro more traders have jumped on the opportunity to sell markets they had no ownership in, with the hope that they decrease in value.
Although very simple, the concept of short selling is a topic many new and experienced traders still struggle to fully get to grips with.
Short selling works as follows. When a trader shorts an instrument they are essentially entering an agreement with a buyer, selling at their requested price, and anticipating the markets price decrease to take place meaning they sold high, and bought low prior to delivering the asset to the purchaser.
What is Longing?
Longing is a lot easier to grasp than short selling for all traders. It simply is the act where a trader buys a financial instrument in the hope that the value of said instrument increases in value. There are a variety of markets which can be bought into, physical markets, or derivatives like Futures, Options and of course CFDs. The majority of new age traders will likely look at entering the derivative markets where buying doesn’t equate to actually having ownership of the underlying market.
The process of going long is as follows. Let’s take the example of buying Gold. For a trader who believes the value of this metal will increase and therefore buy, they will firstly look at the current price, and decide if they are happy to enter now, via a market execution or use a pending order, which will see them only buy when the markets reach a particular price.
Currently Gold is trading at $1,459. Let’s say the trader decides to buy now. Assuming this is a CFD, the buyer will not be receiving a knock on their door, from the mail person with an ounce of Gold to sign for. They simply will have a position in their trading platform which the hope will go up. So if the market goes from $1,459 to $1,469, the trader would be in profit. If it goes from $1,459 to $1,449 then they will be in a loss.
How to profit by longing or shorting?
In order to profit from longing or shorting you are required to have a plan. Regardless of the direction you believe the market may move, most traders are likely to have a range of strategies that assist in making these decisions. Deciding where to enter is no easy feat. So below look at a few basic strategies traders who short sell or long can use for their entry positions.
Strategy 1 – Selling at resistance.
Most traders believe the resistance level is the price point where we see markets usually start to fall after a bull run. As a result a lot of traders will place a sell order at this level as they believe it will be a good point on entry.
Strategy 2 – Buying at support
Buying at the support is ultimately the opposite to selling at the resistance. This is a strategy used by a lot of new traders in looking for opportunities to long. This acts as a self-fulfilling prophecy where a high number of individuals all take action at a similar place, due to the fact that they believe others will do the same.
Regardless of any individual strategy it is always suggested a trader uses more than one in making a decision on where to buy or sell.
Can you buy and sell at the same time?
Yes. This is known as hedging. Some platforms like MT5 do have restrictions on hedging, however most brokers allow traders to take a long and a short position. These positions are usually held simultaneously in the same market. It is always advised to have a well researched strategy if you decide to go down this route.
Best Brokers for buying and Selling?
The best brokers for buying and selling are usually those who allow hedging, have low spreads, good execution speeds and generally reliable. Short selling can be one of the riskiest areas to place a trade especially in stocks, so brokers would need to offer the above and more, to help ease your mind when trading with them.
Here is our list of the best brokers for breakout trading: