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Examining Forex Long and Short Positions
People take risks to earn profits. The basic idea behind trading in forex is to make as much profit as possible in as short period as possible. The market values of the currencies keep changing moment to moment. People go on buying and selling currencies of one country or the other. There is the anticipation factor behind selling and buying of currencies. If a dealer believes that the value of dollars is going to increase he may buy more of dollars and sell off the euros that he had been holding. The forex market works on these expectations and what may be said a gut feeling.
In forex trading parlance, there are two terms called a ‘long’ position or a ‘short’ position. When a forex trader buys a currency of a particular country, assuming that the price will increase and he will sell it off later, then it is said that he is in a ‘long’ position. The trader aims to make profits by the rising price of the currency.
On the other hand, if the forex trader sells off his holdings of a particular currency because he fears that the price of that particular currency may go down then it is said that he is in ‘short’ position. When a trader is in short position he earns profits because the market is declining.
But it must be kept in mind that in the forex market you always have to deal in pairs. You buy one currency and sell another. It maintains the equilibrium in the market. Since the trading has to be done in pairs, forex traders usually deal in well known currencies of the participating countries only because it makes it easier to find a matching deal.
Hence keeping this in mind, whenever the forex trader opts for a long position, he must also opt for a short position. This is essential to maintain the equilibrium of the market.
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