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Forex is a market where currency is a bought and
sold everyday. Trading of more than 1.5 trillion US Dollars everyday makes
Foreign Exchange one of the largest financial markets in the world. The main
aim for everyone trading Forex is to make profit from their position.
Now, the most important question here is that, what is a position?
A Position can be defined as the netted total holdings of a given currency.
A position can also be termed as a trading view expressed through the
pattern of buying or selling. It can denote the size of a currency either
being possessed or payable by a trader. A position can be categorized into 3
types:
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Flat or Square trade or position has no exposure
in the market.
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Short trade or position is where more currency
is sold than being bought.
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Long trade or position is the one where more
currency is bought than being sold.
Open trade or position is the one where an
investor has either bought or sold a currency but is yet to sell or buy back
the corresponding amount to successfully close the position. Currencies are
always valued in pairs in a Foreign Exchange market. That is the reason why
all trades bring about an instantaneous or real time buying and selling of
currencies, where one currency is bought as the other is being sold. This is
the main reason why Forex is known as Foreign Exchange or a Crossing
Currencies market. The main aim of all the traders while trading Forex is to
exchange one currency with another, with the anticipation and probability
that the market prices will change. And if that happens, then the currency
you bought has the chances to increase its price as compared to the currency
that you sold.
If the currency that you buy increases in its value as compared to the value
on which you bought it, then you must instantly sell it back to gain the
profits and secure them. Other terms such as “Going Long” and “Going Short”
in a market are also frequently used. “Going Long” is used when you are
buying a currency and are therefore, said to be “long” in that currency.
Similarly, when you are selling a currency, you are said to be “Going Short”
in that currency. Because the Forex market goes by the exchange system,
traders can be seen buying and selling currencies simultaneously, hence
“Going Long” in one currency and “Going Short” in the other.
An Open position is one which is current and
ongoing. Here, the trade is still going on. In order to Close a position, a
trader has to conduct an equal exchange deal with the same currency pair. If
a currency is bought by you, which has suddenly appreciated in its value,
then have the chances of making profits making the deal and by closing your
position. This means that you will have to sell that particular currency,
just to buy the counter in the pair.
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