Can anyone tell me how the long and shorts work in the stock market?

Question

I know that if you buying long it means you think the stock is going up and the oppisite for short. How does the transactions work. Like for ex. if i was buying google to go long. How much would it cost? Would it be the same as having to buy the stock?

Answer 1

Long means buying the stock (expecting it to go up). To "go long" in Google for 100 shares, you would tell your broker to buy 10 shares of GOOG. It would cost you (at the current price) about $4,893 plus commission (say, $10). Then, you would be long/own 10 shares of Google.

Short means you sell the stock without owning it (expecting it to go down). You are basically borrowing the stock from the brokerage firm, selling it, and when the price drops, you would buy it back and repay the loan from your broker. (e.g., sell the stock short at $500, "cover" or buy it back at $450, repay the broker the shares and you make $50 a share)

To sell Google short, you would call your broker and tell him/her to sell short (example) 10 shares of GOOG. The broker would then credit your account for roughly $4,893 (minus commission). When the stock drops to, say, $460 a share, you call the broker and tell him/her to cover. The broker buys 10 shares of GOOG for $4,600 (plus commission). You keep the difference.

Answer 2

Long simply means you own the security - short means you've sold. No matter the security (stock, option, etc) it means the same. In the case of stocks - going long means you've bought the stock and the only reason (other than covering a short) you would buy stock is if you believe it would go up - buy low, sell high. If you go short - it means you've sold the the security - usually when you don't own it (you've borrowed someone elses stock and sold it because you think the price will drop - then you buy it back at a lower price than what you sold it for - sell high, buy low)

The cost would be the price per share by the number of shares plus a commission. If you go short, you will have to have a marging account that allows you to borrow.

Answer 3

Going long is buying a call. You can look at the options page on yahoo to see how much different calls cost for google. you select a date for expiry, and strike price. So the 450 Mar call for Google is going to expire on the third Friday in March. If you own it, you can buy google for 450/share, adn then sell in the market for a profit, but it is very risky due to the expiration. you can find good value investments at this site

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