People generally solve their financial and risk management problems by taking positions in various assets or contracts.
A position in an asset is the quantity of the instrument that an entity owes or owns. A portfolio consists of a set of positions.
People have long positions when they own assets or contracts.
People have short positions when they have sold assets that they do not own, or when they write and sell contracts. Short positions benefit from a decrease in the prices of the assets or contracts sold. Short sellers profit by selling at high prices and repurchasing at lower prices. Information-motivated traders sell assets and contracts short positions when they believe that prices will fall.
Hedgers also often sell instruments short.
Contracts have long sides and short sides.
The identification of the two sides can be confusing for option contracts.
The identification of the long side in a swap contract is often arbitrary because swap contracts call for the exchange of contractually determined cash flows rather than for the purchase (or the cash equivalent) of some underlying instrument. In general, the side that benefits from an increase in the quoted price is the long side.
The identification of the long side in currency contracts also may be confusing.
Short Positions
Short sellers create short positions in contracts by selling contracts that they do not own.
Short sellers create short positions in securities by borrowing securities from security lenders who are long holders.
