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Go long: what does the term mean in forex

by Sonal
forex

What it denotes in forex to go long

Go long: what does the term mean in forex

Understanding the forex term of go long 

You will learn from the forex brokers South Afric athat, in forex, that is foreign exchange trading, just like in any other marketing trading, to go long denotes that you will buy while having an expectation of your purchase rising in value. It is the opposite of having to go short, which is when you expect the value to go down. In forex, the purchase you make is a currency and why you decide to go long, you will end up making profit when the value goes up. When you go short, you will be able to profit when the value goes down.

What new traders need to know?

When you trade in currency for foreign countries, you will be able to sell and buy pair of currency. All the pair of currencies has a currency that is referred to as base as well as a currency quote. The currency pair normally looks like USD/ZAR = 100.00. It means that the USD or the U.S. dollar is the currency for base while the ZAR or the South Africa rand is the quote currency. It is such a quote which shows a rate of about $1 which is equal to 100 ZAR.

Because each currency which is able to trade has to have a pair, you will need to simultaneously always go long on one of the currency and short on the other when you make a trade. Whenever you are long on a currency, it denotes that you will bet on the base currency which will strengthen against the quote currency. In the above example, you will be having a bet on the dollar which will be equal to more than 100 ZAR in the future market. 

When it comes to a long trade on the above currency pair, you will buy or go long on the dollar and you will go short simultaneously on the ZAR. In such an effect, you will sell the ZAR just like when you short a stock by having to sell the shares.  To be able to borrow a stock market example, when you purchase the stocks from a company like ABC, you will go long on the ABC stock and go short on the dollar as you feel that the value of a dollar will not be able to grow as fast as the value of the ABC stock.

You could as well try to look at the relationship that is between the ABC/USD. When you also sell your stock back, you can be in a position to think of it as to go long in the USD and short on the stock because of whatever reason you might now believe that, it is more valuable of having cash in dollars than it is to hold the stock.

How to go long 

Because you are both selling and buying the currency when you make a forex trade, you can speculate on both the downward and upward movements. To go long on a particular currency, you open a trade in buy position, because you feel that the base currency is a bullish one, meaning it will likely rise in value at some point. Also, it will denote that you are the bearish on the quote currency value, and have a feeling that it will fall. 

If you happen to be correct and the value of the base currency ends up rising, you can close out your trade then at the market price of the currency and take a good profit.

Pips

You can be able to measure the changes in the value pips. A pip is equivalent to 0.0001 of the quote currency except when it comes to the yen whose pip is at 0.01 of the value. 

Why embrace long in forex?

There are various reasons why traders go long ranging from technical to fundamental development. With fundamental analysis, you get to look at economic news related to the currencies which are in question. An example is one where the news releases start to surprise or overshoot economists’ expectations, as it shows that the economy doing better than most people expected and there is normally room for the upside on the currency. Thus, it might be worth to buy the currency, thereby going long. 

Another reason why forex traders might decide to go long with a currency pair is whereby a central bank is able to announce its plans for tightening monetary plans, which tends to historically to lift the value of its currency. 

When it comes to the technical reasons for having to go long, includes prices of the currency break through a particular level of price resistance or a price ceiling. It would show strength which is surprising in the price of the currency mobility and that a new market imbalance might be developing that could end to turn into a trend that is strong. Traders are also known to go long when the prices of the currency come down to a support level that is well-defined or a price floor. 

The traders trend following who watch trend acceleration often to go long on a trade position and hoping to stay in that trade until the expiration of the trend. 

Before getting started on forex trading 

You will need to first ensure that you are mindful of the broker risk. To avoid ending up to deal with a fore broker who is unscrupulous, you will have to choose a firm which is regulated by a government entity. If you are choosing a broker who is in the USA, get one who is associated officially with the CFTC – commodity futures trading commission or the NFA – national futures association. You can as well verify the status of the brokers online on recommended websites by the regulating bodies in your country for forex trading. 

The Securities and Exchange Commission always warns against going for a central repository as there is no such thing which acts for the forex exchange to clear forex trades. You have to know that it is to stock and options trading and thus, a need to take great precaution. You will still deal with market markers on the other side of the market who likely have access to more as well as better pricing information with their own interests.

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