The Facts About Getting A Position In Trading

The foreign exchange market is the largest financial market in the world with transactions worth $ 9 trillion taking place in one day. The Forex market is much different from the stock market and is the center of currency trading. In a Forex trading market, you can buy and sell currency pairs. The main objective is earning a profit. In a foreign exchange market, you have to buy a currency and if the currency value rises, then you make a profit. A profit can be earned only when you have closed your position. The reality is that after you have closed your position, you will sell back the currency to get the profit. Basically you are buying the counter currency from the pair. When you trade a currency pair, then the base currency is valued against the second currency, and its actual worth is established. The reason for doing so is that the real value of one country’s currency comes out when it is compared to the currency of another country.

There are two different positions in a foreign exchange market; one is a closed position while the other is an open position. In the foreign exchange market, a position really means the total commitments that have been netted for a given currency. A position in Forex trading can be flat or square and long or short. As we know, the Forex market works only on currency pairs. Hence the trading leads to buying of one currency and the simultaneous selling of the other currency. The purpose of this is to exchange the base or secondary currency for another anticipating the rise in the market rate. This will mean that the currency you bough has appreciated as opposed to the one that you sold. Now to lock the profit, you will have to sell back this currency. An open position on the other hand means that a Forex trader has bought/sold a particular currency pair but he/she has not sold/bought it back to lock the profit. In other words the trader has not closed his/her position.

If you have bought a currency pair and think that the base currency will depreciate against another currency then you could sell that currency pair instead of buying. This process is called shorting the market. But in the same given situation, if you buy the currency pair then it means that you are going long. Short positions are generally entered into the bid price while long positions are entered into the offer price. Because there is symmetry in the Forex currency transactions hence at any given time, you will be long in one currency and short in another currency. The open position is always ongoing. As long as you keep the position open, there will be a fluctuation in the value based on the market exchange rate. Lastly, you cannot use two different traders for opening or closing your position. You will have to do it with the same Forex trader.