If you are familiar with trading, you will have heard or used the terms "bull and bear" market.
The image of the bear fighting the bull refers to the directional movement of stocks or currency prices up or down.
The bull lifts up the bear with it's horns. The bear crashes it's giant arms down upon the bull.
The battle ensues and is non-stop.
If a trader is in a trade on the basis that the market is going to force the price of a currency pair upward this is known as LONG position.
SHORT position in forex trade is the other side of the coin. When the price moves down, it is possible to sell the base currency (ie the GBP in GBP/USD). When the dollar gains strength (ie the bear - sellers - starts to get the upper hand of the bull - buyers) the price will be seen to move down.
Later, the trader can "close his position" and a profit has been made.
These two ways to make a profit and movements in the market are known as "longs" and "shorts". The position you take will be long or short if you are entering a trade. Long position is "buy" position if you like and Short position is "sell" position. You can remember this because "S" is for SHORT and for SELL.
It can be confusing in forex trading because you buy and sell in pairs. The first currency in a pair is known as the base currency sometimes. So if you are in long position for the pair "EUR/USD" this means you have bought the Euro (and automatically sold the Dollar). However, if you bought the USD/CHF it means you have BOUGHT the dollar and automatically sold the Swiss Franc.
Later, when you "close your position" it is as though you have done the reverse. In fact that is exactly what you have done. The profit/loss you have made depends on the change in value between the pair, which takes place to the fraction of a second, 24 hours per day from Australia to the UK (except weekends).
That leaves us with the question, what is FLAT or SQUARE position.
Well, the answer is simple. What if you decided not to trade at all? This is known as FLAT or SQUARE position. If you are FLAT it means you decided to stay out of the market, usually because you couldn't see an opportunity to trade. If you are a gambler, you won't care if there is an opportunity to trade or not, you will miss the value in being flat or square and you will lose your money.
Being flat is therefore a position. It's a positive position to be in, because although you are not winning money, you are not losing it either.
Staying flat is the best thing to do when you're just not sure or uncertain about trading. This is why it's crucial to get a thorough understanding of a technical and fundamental strategy and learn it in "demo" until you're proficient enough and confident enough in your understanding the market and responding to it with your trading.
Copyright: Copyright © 2006-2008 Sam Beatson
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