How much money is required for Forex trading Part 4 ?

Position - Opening And Closing

Making a deal on the Forex trading market is usually called, “opening a position”. Subsequently, instead of saying, “I’m buying Euros” one should say, “I’m opening a position in Euros”. If the other currency is not identified, it means that it’s a euro-dollar currency pair (EURUSD), i.e. Euros are bought for US dollars. Depending on whether you are buying or selling, the positions are called “long” (“bull”) or “short” (“bear”) on the Forex trading market. So in our case, we should say, “I’m opening a long position in Euros”.

Here is an example of how Forex trading works. Let’s assume that the euro will grow in value, i.e. the price will go up and we open a long position – buy Euros. If we expect the euro to fall to the dollar, we sell the euro, i.e. open a short position.

With regard to Forex trading in currencies for which the base currency is the US dollar, e.g. in a pair dollar-Swiss franc (USDCHF), the situation is a little different. If we believe that the Swiss franc will grow to the US dollar, then the price will go down as opposed in the situation with the euro. In this case, we open a short position for the USDCHF currency pair. Remember the rule that applies to any currency pair: if we expect the price to go up – we buy (open a long position), if we expect the price to go down – we sell (open a short position) on the Forex trading market.

Along with the concept of opening a position, there is the opposite concept on the Forex trading, “closing a position”. It means making a deal opposite to the deal we made when opening the position. If earlier we bought Euros for dollars, now we sell Euros for dollars; if we sold British pounds for Swiss francs, now we buy them for Swiss francs. Proceeds from the deal will hit our account, with gains flowing into our account and losses flowing out.

Ask And Bid

There is another way to monetarily express a currency pair, besides the rate of a currency pair: a quote. This is the information on the current rate of a currency pair expressed in two figures - Bid and Ask.

Ask is the greater price of a quote. The trader can buy at this price.

Bid is the lower price of the quote. The trader can sell at this price.

Let’s take for example the currency pair USDCHF 1.1350/1.1353. It means that you can buy 1 dollar for 1.1350 Swiss francs. Thus, you may sell 1 dollar for 1.1353 Swiss francs on the Forex trading market.