Long and short equity trading strategies have become of more popularity recently, because of the inherent risk proof nature, and the amount of profits it can generate. Basically, a trader enters into a long position in under-priced stocks, and a short position in overpriced stocks. It is expected that both would move towards each other so as to attain price equilibrium and that would lead to a profit for the investor. The concept has now penetrated even the cryptocurrency niche, as it is considered quite a safe game play, in the otherwise unpredictable world of cryptos.
How does Long and Short Equity Trading Strategy Work
Remember that this is not risk proof, but on a net basis, in the long run this strategy is more or less profitable. It is believed that a price shift is always temporary, and everything that moves away from normal, comes back to it sooner or later. And this is an opportunity for traders, whenever it moves away from normal, be it any direction, to enter into a trade. Besides cryptocurrency, hedge funds are another area where this trading strategy of long and short positions is quite popular. Most of the traders usually use this strategy as market neutral, that is, the dollar amount of the long position equals the dollar amount of the short position.
The ideal situation is when the long position goes up and the short position moves down. This is a rare opportunity, but not something that never happens if we talk about cryptocurrency. So choosing a trade pair is equally important as compared to how to make the trade happen. Moreover, factors like geography, market sectors and investment approaches can be used to determine which would be the long leg and which would be the short leg of the chosen crypto pair. And yes, they have to be highly correlated. Remember that this is usually a long term money making strategy, so go for it only if you can hold your investments comfortably for considerable amounts of time.
Who Can Use Long and Short Equity Trading Strategy
It is usually profitable for all kinds of investors, new or seasoned, and small or big. The only requirement is exact know-how and great market knowledge. However, it is tough for people to manage all the trading strategies on their own, so it has been observed, that for this particular one of long and short positions, traders like to go for readymade services like executium.com. Executium.com will not only carry out a balanced portfolio for their clients, but they will also have a team of expert professionals like statisticians, economists, analysts, data intelligence experts etc., who collaborate to make trade decisions working in the background all the time. One thing peculiar to cryptocurrency is that nothing is repetitive, and you can never copy a trade as the market dynamics are never the same. Everything requires a fresh glance, and a fresh analysis. So it is always better to hire experts and venture into diversified trading strategies, long and short equity trading strategy being one of them.