Financial Advisory Blog

Going Long in Forex

230 0

The world of forex Smart Online Trading also has its own set of axioms and jargons, and they’re easy to understand most of the time. However, their implications are not that easy to point a finger on. This is especially true for beginners. Let’s try to understand the concept of “going long” in Forex Online Reviews.

What does it mean?

Going long on a currency simply means that you are placing a buy order on a currency pair.

Back to basics: all currency pairs have a base currency and a quote currency. To illustrate, you can see USD/JPY = 100.00 (that’s theoretical value). The “USD” is the base currency, while the “JPY” is the quote currency. This quote shows a rate of 1 USD that’s equal to 100 Japanese Yen.

Image result for Going Long in Forex

When you place a long trade on this pair, you’re basically going long on the US dollar and going short on the Japanese Yen—at the same time.

Ever heard of trend followers? Those guys are usually quick to recognize trend acceleration, and they’re as quick to go long on a trade, hoping to remain in that trade until the trend ends.

Complements

As a trader, you may go long because of technical and fundamental improvements.

Viewing it from the fundamental perspective, economic news updates can trigger an overshoot or surprise to economists’ expectations. This indicates that the economy of a particular country is beating estimates and perking up higher than predicted. This means that there may be some space for an upside for that currency, and you would think that it’s worth going long on that currency. Another reason for going long is a central bank’s announcement of its plans for monetary tightening. Historically, announcement like that gives a push to that country’s currency.

As for technical reasons, you may go long because of a price breaking through price resistance. Such breakthroughs represent unexpected strength. It may suggest a new imbalance in the market, and that imbalance may lead to a strong trend. Other reasons for going long in this perspective include the situation when the prices slide down to a clear-cut support or price floor.

What You Should Remember

Cutting to the chase: you have to keep in mind that whenever you are in a currency trade, you are always going long on one of the currencies in a pair. Though you may be shorting the pair, you are technically shorting the base currency, while simultaneously long on the price or counter currency.

For instance, suppose you buy a stock from Apple Inc. When you buy the stock of that company, you are going long on Apple’s stock while shorting the US dollar. This may be because you feel that the value of the dollar will not increase as quickly as the value of Apple’s stock. You can visualize this by thinking: APPL/USD.

Lastly, when you sell your stock back, you can view as going long on the US dollar while shorting Apple’s stock. Then, you’re basically thinking that it’s a better move to have cash than having the stock.

Leave A Reply

Your email address will not be published.