Are you interested in Forex trading? Then, you should know these below facts to understand more about your Forex trading. Foreign Currency trading is one of the greatest platforms where investors earn a huge profit. Forex position of a country is an important parameter that one should keep in mind to understand the exchange rates. In this regard, Foreign Exchange Reserves and NFA (Net Foreign Assets) of a country play a vital role.
Foreign Exchange Reserves:
It is the asset that is usually held by the central bank of a country. It is mostly reserved as deposits either by the government or any financial institutions of the country. These reserves allow the central bank to purchase domestic currencies. Also, the quantity of these reserves is analyzed in the context of capital mobility that makes monetary policy as dynamic. If a country fixes its exchange rate, then it is impossible to execute an independent monetary policy.
Net Foreign Assets (NFA):
This defines the difference between the value of an overseas asset that is owned by any nation to the value of domestic asset belonging to foreigners. NFA can also be defined as the cumulative change in current account over time.
Traders who do trade in Forex market should have some knowledge about these phenomena. This is because it eases the process of Forex trading and one can correlate these factors where to initiate the position to trade.
What is a position in Forex Trading?
A position in Forex trading sets beginning of trading. Investors have to initiate their trade either when price of an asset falls or when price of an asset rises. In this way, it sets long position and short position of trading.
In other words, it can be defined as the point where one sets to buy or sell an asset. Investors hold this point to make a profit in the upcoming market trend (movements). In fact, a dealer often takes a long position in specific securities. This is because it helps in maintaining the inventories that allow easing their trading procedures.
What is a long position in Forex?
A long position in Forex is defined as the buying of security or currency with the expectation to earn a considerable amount of profit. Investors should take the minimum risk to increase their possibility of earning over a currency pair.
In this way, Forex position of a country sets the choosing of currency pairs on which investors will initiate their trade. With the long position investment, it can be predicted that trader is thinking of raising the value of an asset after a period.
For example, if a trader initiate a long position (buy) at $10, then he/ she has to wait till the amount reach $12 or $15 to make a profit. At the time if you see the price starts falling, then you should initiate the next position (i.e., short position or buy). This suggests that long position Forex trading will specify the expectation of a trader to gain in buying.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.