Forex trading positions: forex short vs long

Let us understand the difference between short and long positions in forex trading.

Brief Guide to Forex Trading Positions

If you are a beginner in trading, understanding short and long in forex trading or what is also called FX trading is crucial. Taking a long or short position comes down to whether a trader thinks that a currency will appreciate, which means to go up, or depreciate, which means to go down relative to a different currency. Taking a long or short position simply means making a trade with the hope of gaining profit from the rise or fall of an asset. So, when a trader thinks there may be an appreciation, the trader chooses to go long, and if they expect depreciation, they decide to go short. Let us find out more about the short and long trading positions in forex and where they might be used. 

What Is Position in FX Trading?

To put it simply, a forex position is the amount of currency owned by a person or any entity, and they have exposure to the movements of currencies against currencies of other nations. This position can either be long or short. A forex position mainly has three characteristics which are – 

• The underlying currency pair, 
• The direction, which may either be long or short, and 
• The size.

Positions may be taken in different currency pairs by the traders. It is the margin requirements and the account equity that decide the size of the position the traders take. What is most important here for the traders is to use the appropriate amount of leverage. 

What Is a Long Position in FX Trading?

Long simply means to buy. Having a long position in FX trading means that you have purchased a currency pair and are betting on the currency pair to go up in value. Traders use a long position when they expect an appreciation of the underlying instruments. For instance, when a trader carries out a buy order, they hold a long position in the underlying currency they have bought which may be in USD (US dollar), JPY (Japanese yen), or any other currency. Similarly, if a trader buys two lots of USD or JPY, then they have a long position in two lots of USD or JPY. Here, the direction is long, and the size is two lots. To enter long positions, traders carefully observe the buy signals. 

What Is a Short Position in FX Trading?

A short position is basically the opposite of a long position. Short means to sell, so if you are in a short position, it will imply that you have sold a currency pair. A trader enters a short position when they think the value of a currency is going to go down. To short a currency implies selling the underlying currency with the hope that its prices will go down in the future, allowing the trader to repurchase the same currency at a later date but at a lower price. The profit here is the difference between the higher selling price and the lower buying price. For instance, if a trader shorts USD or JPY, they sell the USD to buy JPY.  

Here as well, the traders look for signals for entering short positions. A common signal that traders rely on is when the price of the underlying currency reaches the level of resistance. The price level that an underlying currency struggles to break is known as the level of resistance. 

Conclusion 

Put in a nutshell, long traders in forex trading profit from an uptrend, while short trades profit from a downtrend. It is this ability to go either long or short that makes forex trading advantageous over the stock market. This is because, in the stock market, the profit you are able to make depends on the rise or fall in the market. But, for forex trading, you can make a profit irrespective of whether the market is moving up or down. Make sure you do enough research and find out more about trading positions if you want to open a long or short trade in currency pairs. You must also have the knowledge to determine the future price by using fundamental and technical analysis.