Long position – Explanation
So what is Long position? A term that you probably hear all the time among traders..
A Long Position is the opposite of a Short Position. When you approach your trading platform, and after you decide which asset you want to trade on, your next decision will be whether to buy or to sell. A long position occurs when a trader decides to buy a currency pair (or any other asset), with the expectation for it to rise in value. This is an attempt to buy at a low price and sell at a higher price and thus making profit on the difference between those two prices.
Generally speaking, the profits that can be made by a long position are unlimited as there is no maximum for the level a price can reach. The trader who hold the long position will profit as long as the price of the asset keep rising. If the current price is higher than the price that the asset was bought at than there is profit. In order to calculate the amount of profit we need to subtract the original buying price from the current market price and multiply it by the transaction size.
In Forex, when a trader goes long on a currency pair it means that he buys the base currency (the first one) and at the same time sells the second currency, hoping for the currency pair to rise. If however, a Forex trader expect that the currency pair will lose value he can sell it while hoping to buy it at a lower price at a later stage, and this is will considered to be a short position, which is the opposite of a long position.
Example: A trader decided to buy the EUR/USD currency pair with the expectation for it to rise in value. The trader opened a long position on the pair at the price of 1.1000. As the trader expected, the pair did rise in value, and in order to make profit, he decided to sell it at the price of 1.1050. As a result, the trader earned 50 pips, which is the difference between those two prices.
Now you probably have a better understanding of what is a Long Position. If something wasn’t clear enough feel free to comment or contact me with any question. I promise to help! In order to get all new educational articles straight to your email address SUBSCRIBE to Forex trading channel from the Home Page!