Foreign exchange or forex is an interesting trading activity which involves purchasing and selling of currencies of two different countries. Forex market is the most liquid financial market in the world.
Forex trading is very popular in various countries of the world. US dollar and Euro are the most traded currencies. Japanese yen, Canadian dollar, British pound, the Swiss franc are also popular currencies in foreign exchange market.
Forex position means a way of trading in which trades are bought and help for a span of time. In position trading, many traders don’t quit the position at the end of the day. This technique is used by many investors because of several advantages. But you have to keep in mind some rules at the time of position trading. So, you need to understand it properly.
What is an Open Position in Forex Trading?
Open position forex trading is a position which remains open until another opposing trade occupies its position. In foreign exchange trading, active trades are considered open positions. Without opening a position, you cannot involve in forex trading.
Open position consists of risks which get eliminated only by the position closing. An open position can be held from one minute to years. It depends on the trading technique, style and viewpoint of the trader.
Closing Different Types of Open Positions:
If you don’t close your position, you will not realize the profits or losses of the trade. So, it is very important to close an open position.
- Long Position Closing:
In order to close an open long position, a trader or investor needs to sell the same amount of currency pair value to make his long position zero. If the trader gets more than what he paid, he will earn a profit. If he receives less, he will lose.
For example, if you are trading with 300,000 EURO/USD, you have to sell it back into the market to make the value zero.
- Short Position Closing:
It is entirely opposite of long position trading. In this case, a trader buys the equal amount of currency pair value to make the short position zero.
For instance, if you are trading with 200,000 EURO/USD, you need to buy it back to reduce the currency pair value zero.
- Partial Portion Closing:
By only purchasing and selling the currency value it is possible to partially close an open position.
Suppose, if you sell $25,000 when there is an open position of 100,000 EURO/USD, it closes 2 quarters of the position. It leaves $75,000.
Should you leave your forex position open overnight? What happen if you do so?
If a trader keeps his position open overnight, he will be charged or paid for the open position. The amount of money depends on the interest rates of the currencies you traded. The storage of an open position depends on various factors such as the price movements of the currencies, the expectations of the dealer, the forward market’s behaviour, etc.
To understand the concept of open position in forex trading properly, you can read some good forex books. Do you have any query? Ask me in the comment section.