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What is long and short positions on Forex?
Written by: PaxForex analytics dept - Friday, 25 November 2016 0 comments
The two main concepts, the features of which must know each Forex trader, are the long and short positions. They are used to describe the process of buying and selling, on which basis is carried out all operations on the Forex market.
The implementation of these operations is interconnected and based on the opening and closing positions. They determine the main direction of all transactions on the foreign exchange market: first buying a currency and then selling it when the price will grow. Thus, short and long positions define the profit based on the price trend (increasing or decreasing).
You can open a long position by by clicking on the “buy” button in your MetaTrader terminal. This position got its name – long - due to the fact that this kind of deals usually lasts for a few hours or even days.
Such a long process requires from the participant Forex trader patience, endurance, and stress resistance. This position is suitable for fairly experienced traders, the participants with the analytical and balanced approach to the implementation of the trading orders.
The short position, which you can open by “sell” button in your trading terminal, is called so because its main characteristic is to carry out transactions when the market prices fall. The name was given by the experts, who found that the exchange rates fall faster than they rise. It was also found that the price of a particular currency pair may decline for a specific period of time, while growth can be expected for a long time.
Which position is better? It depends. For the right choice of
positions it is necessary to carry out continuous monitoring and in-depth analysis of the market. If within a few days there will be shown inactive behavior of a trend, with sluggish character, it is better to open a short position.
You should not expect to get very high income from trading only with short positions. However, with regular use of it, you can learn to get a steady income, so increasing the amount on your deposit.
Short positions are commonly used in Forex by participants who are called market makers. They are big traders or institutions who receive the maximum benefit from the auction. They are called “bears” of the market, because they are selling in large quantities at very low prices. This is often carried out in a particular currency, to cause it to fall. As a result, the price falls to a level where you can actually start buying it.
For those who do not have significant financial resources, it is more suitable to use long positions.
Here, you should pay more detailed attention to the implementation of the position. The main thing is that a trader should stick to a balanced and well thought-out trading strategy. For example, you must first purchase a currency pair. Next, using an indicator, you can see whether will be the rise in the price of the currency, which is open to long purchase. The next step will be to set an order for sale.
After that, launching technical analysis, you can get the time and rate of growth of an asset. The final step is setting the order for a few days by using a tool that will close it automatically at a reasonable price and the exchange rate.