What is a Net Long?

A. Leverkuhn
A. Leverkuhn
Man climbing a rope
Man climbing a rope

A net long position in finance is when the investor benefits from an asset gaining in value. A net long position represents the traditional way to invest. Another kind of investing, called shorting or short selling, is when an investor purchases complicated financial products that benefit him or her if the asset loses value.

To understand net long positions, it’s important to know that a net position is all of the various investments of one investor or other party. In a net position, the net result is either going to be long or short. If the net position is long, that means the investor has more money invested toward a beneficial growth of an equity. If the net position is short, that means the investor has more to gain if the value of the stock or equity falls.

In terms of regular investing, most individual investors have net long positions because they do not routinely engage in short selling. Likewise, some mutual fund companies and other firms have rules that restrict their ability to engage in short selling. That makes the net short position even more rare. Some professional traders and others are finding that a net short position can generate gains in specific ways, and are rushing to capitalize on this by shorting stocks and equities.

The United States Securities and Exchange Commission(SEC) is looking at short selling and how it affects markets. Some argue that short selling hurts traditional investors if speculators pushed stock prices lower in order to benefit from a net short position. Others say that short positions help to keep stock prices reasonable when overexuberance can result in inflated values. Investors who know about the nature of short selling understand that there is an inherent conflict of interest between those who want a long position in a stock or equity and those who want to short it. This leads to a lot of analysis of how speculators, long term traders, ratings agents, and others engage in stock valuation according to their various motivations.

When investors have a lot of different open positions, it can be hard to tell what a net long position is really valued at. The best online brokerages have neat software that will show a net long or net short account clearly. However, investors have to have some way to track their own investments, and keep their own records in case of any clerical error by the brokerage. Some investors may benefit from simplifying their total holdings to make their net long position much more evident and open to technical analysis.

You might also Like

Readers Also Love

Discuss this Article

Post your comments
Login:
Forgot password?
Register:
    • Man climbing a rope
      Man climbing a rope