⚡ Trading & Risk · Lesson 5 of 11 · 9 min
Going Long vs Short
🐂🐻 Everyone knows you can make money when a stock goes up. Fewer know you can profit when it craters — and fewer still know that bet can cost you more than you ever put in.
💡 Key idea
Long = bet up (loss capped at your cost). Short = bet down (loss potentially unlimited).
🧠 Why it matters
Going LONG = buying, betting the price rises (the classic trade; your max loss is what you paid). Going SHORT = borrowing shares, selling them, and hoping to buy back cheaper to pocket the difference — betting the price FALLS. The catch: a stock can only fall to zero, but it can rise forever, so a short's potential loss is theoretically UNLIMITED. Shorting is an advanced, higher-risk move.
🌍 In the real world
💡 The 2021 GameStop saga was a 'short squeeze': traders had shorted the stock, it rocketed up instead, and to cut losses they had to BUY back shares — which pushed the price even higher, torching the short-sellers. Unlimited downside, live on the news.
📌 Takeaways
- Long = buy, betting price rises (loss capped)
- Short = borrow & sell, betting price falls (loss unlimited)
- Shorting is advanced and high-risk
📖 Terms in this lesson
Short selling: Betting a price will fall by borrowing shares, selling them, and buying them back cheaper later.
Margin: Borrowing from your broker to invest; it magnifies gains and losses alike.
✅ Test yourself
Going SHORT means you profit when the price...
- Rises
- Falls
- Stays flat
- Splits
Answer: B · Falls
Short sellers borrow and sell high, aiming to buy back lower — they win when price drops.
Why is a short's risk theoretically UNLIMITED?
- Fees
- A stock can rise forever, but only fall to zero
- Taxes
- It isn't
Answer: B · A stock can rise forever, but only fall to zero
Your loss grows as the price climbs, and there's no ceiling on how high a stock can go.
A 'short squeeze' happens when...
- Shorts are forced to buy back as price rises, pushing it higher
- A stock pays a dividend
- The market closes
- Nothing
Answer: A · Shorts are forced to buy back as price rises, pushing it higher
Rising prices force short-sellers to buy back to limit losses, driving price up further — like GameStop.
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