The forex market does not behave like the stocks or the futures market. Traders are not investing in assets but pairs of currency that are not independent of their respective countries’ economic factors. Unlike day traders who make quick investments, they buy and sell stocks within a day. Forex traders go long and short with their investments.
Going long or be bullish means that a currency is purchased with the expectations that its value will increase in the future. Going short or be bearish means that a currency is purchased with the expectation that its value will decrease in the future.
Long position forex example:
If traders trade assets, then long assets mean that traders made a buy position. If traders trade EURUSD and believe in long USD, they will sell EURUSD. Long position forex for currency pairs implies EUR as numerator and USD as the denominator, so when USD goes up, EURUSD will go down.
Everything That the New Traders Must Know
The first thing that you must know is that currencies are traded in pairs, with one is the base currency, and the other is the counter currency. For example, the currency pair of the U.S. dollar and the Japanese yen. It will be denoted as USD/JPY = 100.00. Here, USD is your base currency, and JPY is the quote or counters currency, with $1 being equivalent to 100 yen.
As traders always trade currency pairs, they can never choose to either go long or short. Everything runs parallel. You will go long on one currency and short of the other one. When betting on the base currency to get stronger than the quote or counter currency, you expect the base currency to grow stronger in the future. For example, if you bet on the USD in the above pair, you are going long and expecting it to value more than 100 yen in the future.
In this case, you are going long USD and short JPY. It means that you will buy USD more as compared to JPY. You will sell JPY because you think that its value will decrease. It is similar to selling shares when you want to short a stock.
Let’s compare it to the stock market.
You believe that the stocks of Apple will rise. You will naturally buy its stocks (NASDAQ: AAPL). You did this because your evaluation suggested that the value of Apple stock will rise faster than USD. So, you went short in USD and long in Apple Stock.
When you sell the Apple stocks, you will go long in the USD and short in Apple. You did this because you expected that the value of USD would rise faster than Apple.
This is exactly what forex traders do. They buy the currency they expect to grow (going long) and sell the currency they expect to get weaker (going short). They do this with the currency pair that they have chosen.
How to Go Long Position in Forex
Forex trading isn’t as linear as the futures or the stock market. A trader can speculate on both the downward and the upward movements in a forex trade because they’re simultaneously buying and selling two currencies.
You go long on base currency when you assume that it is bullish; its value is likely to increase. Thus, you open a trade in a buy position. This also concludes that your counter currency is bearish, and its value is likely to fall.
If your research and analysis are right, and the base currency’s value increases, you can make a profit by closing your trade at the currency’s increased market price.
Why Should You Go Long Position in Forex?
Traders decide whether they would want to go long or short on a currency based on technical and fundamental analysis.
In technical analysis, the traders are focused on the charts and sheets that can guide them to assess whether a currency’s value will rise or not. If a currency’s price is rising and breaks through the resistance or ceiling, the traders have technical reasons to believe that they will profit from it. This is because it could lead to the strength and the strength and the mobility of the currency could lead to a new market trend. The traders look for the imbalance. This is why they can also go long when the currency prices are falling but with a well-defined support level.
Fundamental analysis focuses more on economic news and events. The value of a currency is based on several factors and is highly dependant on the social, economic, and political state of its respective country. Traders look for economic indicators like the GDP, interest rate, infrastructural development, average income, and more to comprehend a country’s currency growth. They wait for the news releases to decide the course of their trade. If they think that the economy is doing better, there are higher chances for its currency to move upwards. Thus, the traders will go long and buy that currency.