Strategies for successful trading decisions – going short or long
The Forex market is quickly becoming the focus of attention for millions of new entrants due to its unique advantages. Many people have learnt how to make clever investment choices in order to take advantage of the market. Two strategies in Forex are going short or going long. Once you understand these two strategies you will be able to make important decisions in order to be profitable. The two main strategies will be examined below.
This trading strategy is when the base currency is sold in order to buy it later when the price begins to fall.
For example, if the current GBP/USD is 1.5345 meaning we pay 1.5345 Dollars for one Pound Sterling, and we have $1000 dollars, we would sell the Dollars in order to purchase the Pound Sterling. This is carried out when the cost is expected to fall again in a short period of time.
When the price GBP/USD falls to 1.5350, this means that more Dollars can be purchased with the same amount of Pounds that were obtained at the start. The additional dollars can be kept as profit which was earned by considering the dollar as the base currency.
Risk in short position
As with all financial markets, forex involves the same amount of risk. If the prices go in the exact opposite direction than originally expected, there will be a loss instead of a profit.
For example, if the GBP/USD goes to 1.5340, you would not even get the same amount of Dollars that you sold initially. This strategy is only profitable if prices drop.
In the Forex market, going long refers to buying currencies with the intention of reselling them later when the price increases.
If you notice an increasing trend of a currency for a long period of time, then buying would be the correct option. You should keep the trade open until the price reaches its maximum point before reversing.
For example, if GBP/USD is showing an increasing trend for the past few days and the current price is 1.5400, then you can sell the Dollars to purchase the Pounds and wait for the prices to get to the desired level. When the price gets to 1.5500 you could sell as that earns you more Dollars than your initial investment.
Risk in long position
There is the risk of the price falling once you have purchased the currency. In this situation, your loss would equal the difference in the price at the point which you bought the currency and the price at which you are selling it.
Regardless of the investment in the Forex market, it is essential to know the market trend and the economic conditions of the base currency.