What is Net Long?
An investor is net long when he or she has more long positions than short positions for a particular asset, market sector or portfolio. The concept also applies to commodities trading. Net long is the opposite of net short.
How Does Net Long Work?
For example, let's assume the XYZ mutual fund owns 1,000,000 shares of GM, but has shorted 400,000 shares of Ford. We can say that XYZ fund is net long in the auto industry. note that XYZ mutual fund's net long position means that it generally benefits when news in the auto industry is positive. If XYZ mutual fund were net short, it would essentially be hoping to benefit from bad news (and the subsequent decline) in the American auto industry.
Why Does Net Long Matter?
The vast majority of investors, both individual and institutional, are net long. That is, they are interested in owning securities rather than hedging against or speculating on their decline.
Many institutional investors are required to be net long in certain securities, sectors, or markets; some are required to keep their entire portfolios net long, meaning that they may short some securities but can only do so to a limited extent.
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