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The Long and Short Positions in Forex Trading
The basics knowledge of going long or short in forex are essential for all beginner traders. And taking long or short positions comes down to if a trader sees that a currency will appreciate or depreciate, relative to the other currency. Clearly put, every time a trader thinks a currency will appreciate, they will automatically go long the underlying currency. On the other hand, if the trader sees the currency to depreciate, they will go short the underlying currency.
Forex Trading’s Positions
A forex position is the measure of a currency owned by an individual or entity who then has the experience of the movements of the currency against other currencies. And the position can be either short or long. Also, always remember that a forex position has three characteristics.
- The underlying currency pair
- The direction (Whether it is long or short)
- The size
Aside from that, traders can take positions in various currency pairs. If they assume that the price of the currency to appreciate, they should go long. The size of the positions they chose would depend on their account equity and margin requirements. A trader must utilize the right amount of leverage.
The Long Position
A long position is a performed trade where the traders foresee the underlying instrument to appreciate. For instance, when a trader makes a buy order, they hold a long position in the underlying instrument they thought, i.e., USD/JPY. Here, they are expecting the U.S. dollar to appreciate against the Japanese yen.
The Short Position
Then, a short position is basically the contrast of a long position. When traders enter a short position, they assume the price of the underlying currency to depreciate. To short a currency hints to sell the underlying currency in the faith that its price will go down in the future, letting a trader repurchase the same currency at a later date but a cheaper price. The difference between the higher selling price and the lower buying price is the profit. For example, if a trader shorts USD/JPY, they are selling USD to purchase JPY.
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