Some instructions may say to put it 2 inches from the airbrush end of the hose. I did one that way, and always hated it bumping against my hand or getting hung up on the desk while airbrushing really close in. If you're gonna use one of those, I'd say wrist to elbow length will do fine.
This kind of trap does work, but they aren't necessary if you can just use a filter/moisture trap before the airbrush hose. I don't even use the hose that has that trap installed on it now that I have a regulator/filter/gauge before the two airhoses I currently have in use. I am also getting absolutely no moisture at all in the trap.
Moisture is a very small problem, yet a very small amount of moisture can cause a big splat, of course. It's real easy to cure without cutting up an airhose that costs $18 USD.