In trading, the term “flip” is often used to describe a situation where a trader changes their position from long to short, or vice versa, often in a quick manner.
This is usually done in response to changing market conditions that indicate a potential shift in the direction of price movements.
For example, suppose a forex trader has a long position on the GBP/USD pair. This means they’ve bought GBP and sold USD, expecting the GBP to appreciate against the USD.
If, however, new economic data comes out or a significant event occurs that suggests the GBP might depreciate against the USD, the trader might decide to “flip” their position.
In practice, the trader would sell GBP and buy USD to close their long position and then open a short position by selling GBP and buying USD. Now, they are betting on the GBP depreciating against the USD.
Another example is if a trader is long on a particular stock (meaning they have bought the stock expecting its price to rise) and new information or market trends suggest that the stock’s price is about to fall, the trader might decide to “flip” their position.
They would do this by selling the stock to close their long position and then opening a short position (meaning they are now betting that the stock’s price will fall).
Flipping can also refer to the practice of buying shares in an initial public offering (IPO) and then selling them quickly after the shares start trading on the open market, often on the first day of trading.
Traders who do this are hoping to profit from the often substantial price increases that can occur in the early days of trading for a newly public company.