Long vs. Short: When to Go?

Understanding the fundamentals of going short or long in forex trading is very essential to every beginning forex trader. Taking either of the positions will come down whether he thinks a certain currency will go up or appreciate, or go down or depreciate,  in relation to other currency. Simply, when a trader foresees that a currency will go up, he will go long the principal currency, and when he anticipates that the currency will go down, the trader will go short of that specific underlying currency.

Below are more information that will help traders know and understand more what short and long positions are and when to make use of them.

Forex position is the currency amount which is possessed by a person or entity who  has an exposure to the currency movements against other currencies. Positions can either be short or long. Forex positions have three features, namely: underlying currency pari, direction, and the size.

Traders can yield positions in various currency pairs. If they anticipate that the value of the currency will appreciate, they could decide to go long. The position size they’d take would depend on the margin requirements and account equity.  It is vital that traders utilize the right amount of leverage.

Long Position

What does a long position mean and when to trade it? It is a trade performed where the trader assumes the underlying tool to increase in value. For instance, when a trader performs a buy order, they make a long position in the certain currency they bought like USD/JPY. This example shows that traders expect the USD to increase against the JPY. For instance, a trader who bought two lots of the currency pair USD/JPY has a long position of two lots USD/JPY. The underlying instrument is USD/JPY, the size is two lots, and the direction is long.

Traders wait for the buy-signals to come into long positions. Traders use indicators to look for signals when to buy and sell in the market. A sample of buy signal is when a currency drops to a support level.

The benefit of the currency market is that it trades 24 hours daily and 5 days a week. Some traders choose to trade during major sessions like the London session, New York session, and sometimes Tokyo and Sydney session, for the reason that it is more volatile.

Short Position

Now, what does a short position mean and when do you trade it?
A short position is basically the long position’s opposite. When forex traders enter into a short position, they assume that the value of the currency will go down or depreciate. Going short on a currency means that you will have to sell it in the hope of its price to depreciate in the future, letting the trader to buy back the asme currency at a later time but at a lower value. The profit will be the difference between the higher selling and lower buying price. A practical example will be a trader selling USD to buy JPY.

Traders wait for sell-signals in order to enter short positions. A common signal is when the currency value reaches a resistance level. It is the level wherein the price level of the underlying currency is struggling to break above.

These are just a few of the forex trading’s short and long positions. It is vital to study the market so you can make the right decision of going in the right direction.

 

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