Wednesday, June 29, 2016

Understanding Long and Short Trades

If you are trading in the Financial market, you probably came across the term “long” and “short” trade. In trading, these terms are often used to classify two types of trades. They can be quite confusing to understand especially if you are still quite new in forex trading. So, through this article, let us help you to further understand these trading terms.

What are Long Trades

Long trade is a type of trade where the intention is to profit from advancing markets. It refers to the kind of trade where the trader buys (goes long) a currency in hopes that it will rise in value in the future. 

The term “long” is commonly used to refer to an open position. For example, if a trader says he’s long on EUR/USD, it basically means that he’s currently buying the Euro and selling the USD, implying that he’s making profits whenever the value of the Euro rises against the dollar. 

Traders often use the phrase “I am going long” or “go long” to express their interest in buying a specific currency.

What are Short Trades

Short trade is the opposite of the long trade. It is a type of trade where the trader attempts to sell a currency in hopes that its value will decline in the future. This kind of trade profit from falling markets. In order to short a currency, traders need to borrow the currency from their broker and return it at a later date (right when the price goes down, so they can profit from the trade).

Long and short trades are a little bit different in the forex market. In forex, when you are long of one currency, you are always short of another. For example, if you buy EUR/USD, it means that you are long on the EUR and short on the USD. It also applies to the opposite. If you sell EUR/USD, then it means that you are short on EUR and long on the USD.

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