# Choosing Sides: Buying or Selling

Now that we’ve gained an understanding of what a market is and who its participants are, we turn our attention to the different types of trades that you can make. We just talked about the two kinds of market participants, buyers and sellers, and now we will cover the different ways that buying and selling sentiment is expressed in the markets. In other words, what makes you a buyer or a seller?

Trading is conducted via orders. You can think of orders as instructions for your broker, or your decisions inside of the trading platform. An order, also referred to as a trade, is made by the trader, and when it is filled (accepted/placed/realized), it becomes a position – your position in a market.

This is also a good time to introduce the terms ‘bullish’ and ‘bearish’, something you’ve probably heard of in a trading context before. The bull, with its horns pointed upwards, is a symbol for prosperity and growth. On the other hand, the bear, with its claws pointing down, is a symbol for decay and loss. When someone says they are bullish, it means that they are optimistic of the future, and think that the price of that market will eventually increase. When someone is bearish, it means they are pessimistic of future prospects and are anticipating a decline in the market price.

So, what kind of trades does a bullish or a bearish trader make? You would probably say that a bullish trader would be buying and a bearish trader would be selling – and that is mostly correct.

A bullish trader would want to be long the market, and the bearish trader would want to be short. Long and short are two more terms frequently used in trading. While the bulls and bears analogy helps traders express their sentiment, the terms long and short ultimately determine which way the investor is exposed in the market, and whether they are a buyer or a seller.

When you want to go long, you are going to be using buy orders, or trading with the buyers, becoming one yourself. Going long, investing in something, is the most basic concept of trading. You are bullish, and so you buy the market, and you will only sell when you are no longer bullish, or you simply want to redeem your invested funds for a profit.

Going short is different. You can be bearish on a market that you previously had no involvement with, however expressing your pessimism simply by not trading is no way to earn a return. There is no way for a trader to profit from not trading. This is where going short takes on a slightly different meaning. When a trader goes short this means that they are pessimistic about the future price, and they want to profit from this eventual decline without actually owning the asset in question.

So, how do you make a profit from something that is falling in price? You sell the market short.

Selling short used to be a very audacious move done by traders that had the full conviction that a stock would decline in price. In the past, someone wanting to go short would borrow the asset in question (from their broker), then immediately sell it for its current market price, wait for the price to fall, buy the asset again when its price is low, and return it to the lender. The process is best illustrated with an example.

Let’s assume that you think that Apple’s stock price will decline in the next coming months. Your neighbor owns Apple stock, so you go to him and ask him to lend you his shares, currently worth $10,000, for a couple of months. You agree to also pay him $250 of interest a month for this unusual favor, and he agrees. You take his shares and you go to your broker, immediately selling them for what they’re worth. You now have $10,000 in your pocket. Two months pass, you owe $500 of interest, and then Apple’s share price falls 50%. Now you go to the market and buy the same amount of shares that you borrowed, but at a lower price, spending only $5,000. You go back to your neighbor and exclaim; “Here are your shares, and the interest you have earned, have a nice day”. After purchasing the shares again and paying the interest, you still have $4,500 left as your profit.

Nowadays, shorting is a lot easier. On Morpher, going short is as easy as going long. It’s important for traders to be able to express their sentiment freely and trade in any way that you want, otherwise it would be impossible to profit from declining market prices. Regardless, short selling is still viewed today as a contrarian tactic. Many traders stigmatize short sellers for profiting during bear markets and pessimistic news, and others view the tactic as too risky. It’s important to remember that when a trader goes long a market, the most they stand to lose is 100% of their position. The most a price can go down to is $0 – a complete loss of capital. Short sellers face an opposite set of risks. Someone shorting a market has the risk of it increasing indefinitely, to the point where the short seller would owe more money to the lender (learn why this isn’t possible on Morpher here), and the most he could earn is 100%.

This is why it makes no difference to the short seller if a stock is trading at a high or a low since their best-case scenario is still a price of $0 – which comes as the result of bankruptcy.

To recap; if you’re bullish and want to go long, use buy orders to profit from an increase in the market’s price.

If you’re bearish and want to go short, you would use sell orders to sell short the market, and profit from a decrease in its price.

On Morpher we use buy and sell orders to go long or short. It’s important to remember that you don’t actually own the asset/stock/coin/commodity when you trade. Exiting positions on Morpher is done with closing orders. Read More . . .