Understanding long and short positions in forex.
How long and short positions in forex operate.
Recent economic activity of Britain’s congruent policy changes against the E.U, a wavering U.S dollar, and the inescapable fluctuations of interest rates have produced enough volatility to allow substantial opportunity to generate significant gains in the currency markets.
These new global events have persuaded many newcomers into the FX trading world.
Historically, many people have always been magnetized to trading . A complex, yet captivating world where one click of a mouse, and fifteen minutes later, you can potentially obtain more profits than another person makes in a year.
FX trading requires minimal deposit, and is open twenty four hours a day. FX trading provides flexibility to work when you want and wherever you want. The reality of trading from a hammock at some exotic beach destination, or monitoring your trades while breathing fresh, mountain air at some luxury ski resort seems to be the trend these days. All of which are acceptable when gaining a little bit of experience.
Potential wouldbe traders usually start by deciding on a broker, devise a blueprint, and begin educating themselves.
Typically, their first insightful questions asked are:
What books should I read?
What will be my trading style?
Which technical analysis strategy will be right for me?
Sometimes they even use demo accounts and paper trade virtual money until they find a strategy that works.
Assuming you have already made your decision, opened an account, and visualized this fabulous new lifestyle that is packed with mansions, exotic cars, speedboats, and location independence, you should probably begin to familiarize yourself on how currency pairs trade. Without this fundamental knowledge, everything else you study will prove futile. Let’s get right into it!
Currency Pairs Defined
Consider the EU vs USD
Going long this currency pair, the first currency, which is the EUis bought while the second currency, the USD is sold short. To go “long” this currency pair means essentially that you believe that the Euro will rise in relation to the US dollar.
Every FX trading position requires a trader to go long in one position while concurrently going short in another.
A “short” position in EU vs USD example occurs when the first currency, the Euro is sold while the second currency, the US dollar is bought. To go short on a currency means that your selling it, speculating on a decline in the market price.
When you buy a currency pair, you buy the base currency and sell the quote currency. The exchange rate tells buyers how much of the quote currency they need to buy one of the base currency.
This means you need 1.15 USD to buy one Euro.
It also means if you sell one Euro you get 1.15USD. All trades involve buying one currency and selling another currency at the same time. If in the next day the Euro increases in price against the USD and the exchange rate is now 1.30, for every 1 Euro that you bought, you have earned 15USD cents.
Remember, spend time studying how to buy and sell positions in forex, and the inverse relationships of a forex short long position. This will be your first step in taking you from a novice to a professional
Your fabulous lifestyle awaits.