What does “going long a stock” mean?
Going long a stock is Wall Street vernacular for buying and holding a stock.
You might hear the term a lot if you watch CNBC or read financial media. And I discuss it at length (pardon the pun) in my book, The Stock Market is For Everyone.
What does it mean to short a stock?
When an investor believes that the value of a stock is too high, the investor can place a bet that the stock price will fall, and make a profit if s/he is right. This is done by shorting the stock.
When you short a stock, you are selling shares you don’t own with the hope of buying them back more cheaply.
When you sell a stock short, your brokerage firm has to borrow the shares in order for you to cover your short. And in order for this to occur, you will need to use margin, which as I wrote recently, I strongly discourage.
So, this is how you short a stock. (Many people have a hard time with the concept of being able to sell something they don’t own.)
Until next time!