Wednesday, March 25, 2015

The long and the short


Forex markets use the same terms to express market positioning
as most other financial markets. But because currency
trading involves simultaneous buying and selling, being clear
on the terms helps — especially if you’re totally new to financial
market trading.
Going long
No, we’re not talking about running out deep for a football
pass. A long position, or simply a long, refers to a market position
in which you’ve bought a security. In FX, it refers to having
bought a currency pair. When you’re long, you’re looking for
prices to move higher, so you can sell at a higher price than
where you bought. When you want to close a long position,
Getting short
A short position, or simply a short, refers to a market position in
which you’ve sold a security that you never owned. In the stock
market, selling a stock short requires borrowing the stock (and
paying a fee to the lending brokerage) so you can sell it. In forex
markets, it means you’ve sold a currency pair, meaning you’ve
sold the base currency and bought the counter currency. So
you’re still making an exchange, just in the opposite order and
according to currency-pair quoting terms. When you’ve sold a
currency pair, it’s called going short or getting short and it means
you’re looking for the pair’s price to move lower so you can
buy it back at a profit. If you sell at various price levels, you’re
adding to shorts and getting shorter.
In currency trading, going short is as common as going long.
“Selling high and buying low” is a standard currency trading
strategy.
Currency pair rates reflect relative values between two currencies
and not an absolute price of a single stock or commodity.
Because currencies can fall or rise relative to each
other, both in medium and long-term trends and minute-tominute
fluctuations, currency pair prices are as likely to be
going down at any moment as they are up. To take advantage
of such moves, forex traders routinely use short positions to
exploit falling currency prices. Traders from other markets
may feel uncomfortable with short selling, but it’s just something
you have to get your head around.

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