Forex trading positions: Shorting and Longing
The main goal of the forex market is gaining profit from your position through buying and selling different currencies. For example, you have bought a currency, and this particular currency rises in value. In this case, you gain profit if you quickly close your position. If you close your position and sell the currency back for fixing your profit, you are in fact buying the counter currency in this pair. That is how a rate of worth has been discovered; its one currency value compared to another while operating with currency pairs. In the end, currency of any country has value only compared to another country's currency.
The forex position is the netted sum commitment in a particular currency. The position can be flat or square, long or short. We call the position square when there is no exposure, it is long if more currency is being bought than sold, and the position is short if more currency is being sold than bought.
The goal of currency trading is exchanging one currency for another. The broker usually expects the market rate or price to change in such a way that the currency he has bought rose in value compared to the one he has sold. Currencies are always defined in pairs in the forex market; and consequently, synchronous buying of one currency and the selling of another follow all trade operations. If you have bought a currency and the value of its price increases, the broker should sell the currency back if he wants to fix the profit at this level. What's "an open trade or position?" It occurs when a trader has bought or sold one currency pair and has not sold or bought back the same sum to close the position.
In this business, there are two common expressions: going long and longing the market. What do they mean? It is when you want to purchase the base currency, and are supposed to purchase the currency pair as well. “Going long” the EUR/USD pair means purchasing the base currency and selling the same sum in the quote currency. You should own the quote currency before selling. It is sold quickly in the open market and used to protect your long position on the base currency.
There is also the so-called "shorting the market." The same rules are used here as explained above only vice versa. If you see that the base currency value is getting lower than particular currency or the secondary currency is exceeding the base currency, you should not buy the currency pair; but on the contrary, sell it. “Going short” the EUR/USD pair means selling the base currency and buying the same sum of the quote currency at the running exchange rate.
To put this in another way, one is said to be "long" in that very currency when he is buying it. Long positions are within the offer price. Therefore, if the broker is purchasing one GBP/USD lot at the rate of 1.5847/52 means that you will purchase 100000 GBP at 1.5852 USD. In addition, one is said to be "short" in the currency when he is selling it. Short positions are within the bid price, which is in our case 1.5847 USD.
The trader is always long in one currency and short in another at the same time because currency operations are symmetrical. Therefore, if one exchanges 100000 GBP for USD, he turns out to be short in sterling and long in US dollars.
Continued and live and position is called "open." The value of the open position changes according to the market exchange rate. All benefit and loss exist only officially and influence the margin account. Suppose you want to close your position. In this case you start an identical and opposite trade in the same currency pair. For instance, if you have gone long in one lot of GBP/USD at the predominant offer price you can afterwards close out that position by going short in one GBP/USD lot at the predominant bid price. Besides, it is impossible to open a GBP/USD position through Broker One and close it out through Broker Two, as you should conduct the opening and closing trades with the help of the same mediator.