Understanding the Long and Short Positions in Forex
For novice traders, terms used in the Forex market may be confusing. Hence the significance of understanding Forex terminologies and what they represent.
Today we’ll be dealing with long and short positions.
As you know, trading currencies involve buying one currency while simultaneously selling another. Therefore, traders take either long or short positions in the market.
These positions are discussed below;
What is a Long Position?
A long position is taken when a trader buys a currency expecting it to appreciate in value against the other currency it is paired with. This can also be referred to as “going long” on a trade.
It is simply buying the base currency and selling the quote currency.
The USD/CAD chart shows a series of higher highs and higher lows indicating an uptrend. A trader would buy USD and sell CAD, expecting the USD will continue to appreciate in value.
In this case, the trader has entered a long position.
What is a Short Position?
Traders enter a short position by selling the base currency and buying the quote currency expecting that the base currency will depreciate in value against the quote currency. This is “going short” on a currency pair.
The daily AUD/USD chart above indicates a series of lower highs and lower lows, thus a downtrend. A trader would go short on this pair expecting that the AUD will continue to depreciate in value against the USD.
The trader will be said to be in a short position.
Long and short positions are favorable in rising and falling markets respectively. Apart from long and short positions, there are other important terminologies that every trader should be familiar with. Investing in the knowledge of the Forex markets will further increase your chances of success.