Forex, going long or short position is synonymous with every trade carried out in the forex market. This is because, in every trade, a trader is expected to go long in one position while going short in the other one. In this article, we will discuss what it means to go long and short in forex trade, and the reason/benefits a trader has to go short or go long in forex.
DEFINITION OF GOING LONG IN FOREX
To go long in forex means to buy security in hopes that the asset would rise. Just like the name implies, to go long/ long positions investments are long term investments and traders that go long do not have the intention of selling the commodity any time soon. So, two basic things about going long in forex trade can be summarized as follows
- A forex trader who decides to go long in forex trading can only buy a security expecting that the asset of the security would rise in future.
- A fore trader involved in long term investment, or who goes long in forex, have no intention to sell the acquired security any time soon.
DEFINITION OF GOING SHORT IN FOREX
To go short in the forex market means for a forex trader to sell borrowed security in the open market in hopes that the cost of the security would decrease with time. If the cost of the security does decrease, the trader would buy back the security (at a lower price this time) and probably return them to the person she borrowed them from. For instance, if a trader borrows and trades a 100USD worth of security in a short forex position, and the value of dollar does decrease as hoped, the trader would buy back the exact amount of security for less than 100USD, and make some profit from that. Assuming dollar decreases to its barest minimum, the trader can only gain 100USD or less; but if the trade goes against the trader’s expectations, the trader can lose infinitely since there is a tendency for securities to increase infinitely in the forex market.
COMPARING LONG AND SHORT POSITIONS IN FOREX MARKET
- Basically, in the forex market, to go long positions means to acquire securities, to own them; while to go short means to borrow security, to owe them. So, in long positions, securities are owned, while in short positions, securities are owed.
- An investor that owns, say 50 shares, is said to be long 50 shares; while an investor who owes 50 shares is said to be short 50 shares.
- The forex market is all about opportunities. Going long is not riskier or better that going short or vice versa. It is a matter of knowing when to apply what trading tool to make maximum profit.