Forex glossary of terms
Forex positions - open, close, short, long
A forex investor can basically enter the market by buying (long) and selling (short). This is to say that you do not need to own to be able to sell, which is a big advantage really because you can buy it back later at a lower price, and make a profit from the difference. Also, you do not need to wait until the trend goes up to buy or for it to decline in order to sell. Because of this, the forex market is a two way market that enable its investors to take profit regardless if the trend is moving up or down.
The difference between long and short is not important. As long as a trader sell at a high price and buy at a low price, profit is guaranteed. It really doesn't matter if the buying or selling comes first. Investopedia.com characterize short selling as "selling a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short."
Noble Drakoln, the author of the book 'Winning the Trading Game' stressed that shorting the market will not work in stock market but will thrive in markets such as foreign exchange. He also emphasized that a trader should not be afraid to short sell in order to gain the most, "anyone new to futures and forex must embrace the short sell side as easily as the long side; otherwise, you will easily cut your opportunities in half when you initiate a trade."
If the market moves up after a trader did a short sell, he will be forced to buy back at a higher price and make a loss. Author John L. Person of 'Candlestick and Pivot Point Trading Triggers observed, "theoretically, a short seller is exposed to more risk than a trader with a long position; however, through the use of stop-loss orders, traders can mitigate their risk regardless of long and short positions."
If you have enter the market and your trading is active, you are in an open position. To wrap up a cycle of buying and selling, you now need to close it. This is known as going flat or squaring up. If you did a short selling, you need to buy to go flat, and likewise, if you are long, you need to sell to close position.
When you hold your open position for more than a week, it is considered to be long term trading in forex. This is because, some forex trading involves only minutes from open to close position. A long term forex trading is not a bad idea in the event the market go the opposite direction as your open position. Long term forex trading is perfect for investors who do not have the time to keep close tab of forex movements and for those who require additional time to study fundamental and technical analysis.
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