Going long and going short
When trading spot forex, there is no physical delivery of currencies. Rather, you are taking a position on the price movements made by currency pairs. Since there is no ownership of the underlying asset, you can take both long and short positions, which is one of the characteristics of forex when compared to other financial assets. With stocks, for example, you need to borrow shares of stock before you can short them. As this is not the case with forex, going long or going short is a lot more seamless.
When to buy and when to sell
Before trading a currency pair, one of the first things you need to do is decide whether to buy or sell.
But, as we’ve covered previously, when trading forex, you’re always buying one currency while selling another. So, when we say ‘buy’ or ‘sell’, we are referring to the base currency of a pair. For example, if you place a buy trade on EURUSD, you’re buying euros and selling dollars.
What has this got to do with ‘going long’ and ‘going short’? It’s quite simple.
‘Going long’ is trader talk for placing a buy trade. This is something you’d do if you expected the base currency in a pair to rise in value against the quote. You’d then sell the currency pair at a higher price later to make a profit.
‘Going short’, on the other hand, is trader talk for placing a sell trade. This is something you’d do if you thought the quote currency in a pair would rise in value against the base. You’d then buy the pair back later at a lower price to make a profit.