When it comes to forex trading strategies for beginners it is important to understand the meaning of two important terms: short and long. These words are used in the forex and stock markets and every trader must know their meaning.
If you want to trading forex on the top Forex Brokers in Italy you have to know what the long and short positions are. ‘To go short’ and ‘to go long’ are two basic terms that describe the performance of the market.
They are two basic expressions for beginners who have to choose which is the best strategy to follow among all the forex trading strategies.
To ‘go short’ means SELL and to ‘go long’ means BUY. Let’s see how they work, translating all this on the forex market.
Forex trading is done on exchange rates of a currency pairs. The exchange rate relates to the relationship between two currencies: the base currency (the first to appear in the ratio, the numerator) and the currency traded (the second to appear in the ratio, the denominator).
The exchange rate will tell us how much money (of the traded currency) is required to buy the base currency.
‘Going long’ means to buy the exchange rate, aiming to the appreciation of the base currency (increase of its value) on the second currency, or to an increase in the value of the numerator compared to the denominator. In this case, the expectation is the increase of the exchange rate.
You will then have a bullish market scenario, which specifically provides for an increase in the value of the purchased currency. This way, when you will sell it, the increase in the exchange rate will yield money.
‘Going short’ means to sell the exchange rate, aiming to the appreciation of the traded currency, or to an increase in the value of the denominator compared to the numerator. In this case the expectation is for a decrease in the exchange rate.
This will open a position that aims to the drop of the price and in this case the scenario will be bearish.
It is easier to do it than to describe it. Here we go with an example.
You are trading on GBP/USD that is actually at 1,25.
If my expectation is for an appreciation of the GDP (depreciation of the exchange rate – 1,24) then I will ‘go short’ on the exchange rate, opening a short position.
If my expectation is for an appreciation of the USD (appreciation of the exchange rate at 1,26) then I will ‘go long’ on the exchange rate and I will open a long position.
There is no definitive answer on what is good to do because it depends obviously on the situation of the market. What we would like to recommend however is to properly evaluate the trend of the currencies pair that you are trading. The trend is the result of what other traders have done while you are thinking ‘what to do’.
Also, it is always important to to think whether it makes sense to enter the market now or whether it is better to wait.