What is a position in FOREX?
The good news about FOREX trading is that you can earn money, regardless of whether the asset price goes up or down. Both of these market movements could become the source of your profits. In order to get more understanding of how this works, let’s begin with defining the word “position” and other related details.
Position of a trader
Sometimes it is called an open trade, because technically it appears after you have made an order to buy or sell a certain asset. It has a number of parameters: opening time, closing time, traded asset and profitability, otherwise called a floating profit or loss.
The trade which is still open is called an “in-the-market” position. Until it becomes closed, the potential result (floating profit or loss) is not yet fixed in the customer’s account.
After the position is closed, the result becomes recorded in the account, which either leads to increasing your deposit (in case of a profitable trade), or to its diminishing.
On the Olymp Trade Forex platform, as soon as you opened a trade in any direction, you can monitor its inconclusive result on the ongoing basis. If the market dynamics is in favour of your forecast, then the profit is generated; if quotations go the opposite way, you will see negative values. So, up until the closing moment, profits could turn into losses, and vice versa.
What is a long position?
The essence of a long position in FOREX is simple – it describes a situation when a trader thinks the chosen asset will grow in value. Therefore he makes a purchase, hoping to sell this asset afterwards at a bigger price.
What is a short position?
Speaking about the short position, it happens when a trader believes the asset value will depreciate. So, he would first sell the chosen asset, seeking to buy it back again later and earn on the price difference.
“Bulls” and “Bears” in FOREX
In stock exchange vernacular, the long positions are often called bull positions, while investors who open them are consequently called bulls. One of the versions explaining how this term came about goes like that: when bulls attack an enemy, they use their horns to rise him up in the air. Besides, a bull is a pretty stubborn animal – just like the investors who buy and hold, expecting the price of an asset to rise. Such was the common belief in European coffee houses of the XVII–XVIII centuries, where the stock exchange trading was burgeoning.
The alternative name for the short position is a bear position, and the investor who opened such a trade is called a bear. In this case, the analogy is a bear fight: when these animals attack, they lean on their enemy with the full weight of their body, wrestling him to the ground. Similarly, bear investors expect that the asset price will go down. This term was first used at Jonathan’s Coffee House, where traders had gathered together ever since 1695, to open their long and short positions.
Important thing to remember: before choosing between a long and short position, do some research on the previous market behaviour of your traded asset. And it is not reasonable to always take side of one particular trader group (bulls or bears) – simply because the market situation is ever-changing. So you have to stay aware where the wind blows all the time, and readjust your positions accordingly.
Check out our next courses – to find plenty of useful ideas helping with the market analysis!