Differences Between Long Borrowing Volume and Short Borrowing Volume

Here are the differences between long borrowing volume and short borrowing volume:

Difference in Trading Objectives

• Long Borrowing Volume Investors expect the asset price to rise and borrow funds (usually stablecoins or fiat currencies) to buy more assets, aiming to sell them at a higher price for profit. For example, if an investor believes Bitcoin's price will increase, they may borrow USDT to buy Bitcoin, then sell it after the price rises, repay the USDT loan, and earn the price difference.

• Short Borrowing Volume Investors expect the asset price to fall, so they borrow the target asset (e.g., cryptocurrency) and sell it immediately, hoping to buy back the same amount at a lower price to repay the loan and profit. For instance, if an investor expects Ethereum's price to drop, they borrow Ethereum, sell it, and buy it back at a lower price to repay the loan, earning the spread.

Difference in Operational Approaches

• Long Borrowing Volume

  1. Borrow funds first.

  2. Use the borrowed funds to buy assets.

  3. Sell the assets at the expected price after the price rises.

  4. Repay the principal and interest of the loan.

• Short Borrowing Volume

  1. Borrow the asset first.

  2. Sell the borrowed asset in the market.

  3. Buy back the asset at the expected price after the price falls.

  4. Repay the borrowed asset to complete the transaction.

Difference in Risks Faced

• Long Borrowing Volume

  • If the asset price falls, investors face losses. Since the asset price can only drop to zero at minimum, the loss from longing is limited.

  • However, if high leverage is used, a significant price drop may trigger forced liquidation, causing investors to lose their collateral.

• Short Borrowing Volume

  • Theoretically, asset prices can rise infinitely, so shorting carries the risk of unlimited losses. When prices rise, investors must buy back the asset at a higher price to repay the loan, potentially incurring huge losses.

  • To control risks, stop-loss orders are typically set when shorting to avoid excessive losses.

Difference in Market Expectations

• Long Borrowing Volume Reflects investors’ optimistic expectations for the market or specific assets, believing prices will rise. It is a bullish trading strategy.

• Short Borrowing Volume Reflects investors’ pessimistic expectations for the market or specific assets, believing prices will fall. It is a bearish trading strategy.