All those people who are into financial markets know the meaning of long position and short position, while long position means an investor or trader is buying the security while short position means investor or trader is selling the security but in case of foreign exchange its different as one is dealing with currencies and not securities and currencies are always traded in pairs and not alone. In simple words long and short position in Forex markets can be very confusing for layman and in order to understand it better let’s look at meaning of long and short positions in case of foreign exchange markets –
Long Position Meaning in Foreign Exchange
In case of foreign exchange market currencies are always quoted as base currency/counter currency so for example if currency is quoted as USD/ EURO than USD is the base currency and EURO is the counter currency and if an individual is long that implies that he or she will buy the base currency which is USD and sell counter currency which is Euro.
Short Position Meaning in Foreign Exchange
When an investor or traders go short in foreign exchange market than it means that he or she is selling the units of base currency and buying the units of counter currency, so in the above example if an individual is going short then it implies that individual is selling USD and buying EURO in the foreign exchange market.
A person going long expects that base currency will appreciate against the counter currency in near or long term whereas a person who has gone short expects that base currency will depreciate against the counter currency. However one should be careful while doing Forex trading as it is complex and requires professional knowledge because any mistake in doing a trade can lead to big losses to the person who is dealing in Forex market.