Buying and Selling, Long and Short

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As discussed FOREX rates come in pairs.  Therefore whenever you perform a trade (either Buy or Sell) you are simultaneously involved into 2 actions. This is called Long and Short

When you make a Buy trade you simultaneously Buy the base Currency and Sell the Quote currency.

When you make a Sell trade you simultaneously Sell the base Currency and Buy the Quote currency.

pip

Using the GBP/USD rate on the left you make a

Buy (at the ASK price) Great Britain Pounds by Selling US Dollars. (You sell 1.6111 USD for every GBP you Buy)

Sell (at the BID price) GBP by Buying US Dollars. (You buy 1.6108 US Dollars for every GBP you Sell)

Long and Short

So you are ready to make a trade.

If you expect the FOREX pair value to rise you Buy  (ie Long the pair)

If you expect the FOREX pair value to fall you Sell (ie Short the pair)

Contrary to stocks you can Sell a FOREX pair without Buying it first.  This is known as Short Sell.  The reason you can do this is because Selling in FOREX is equivalent to Buying the quote currency. This allows you to trade and make profits in both rising and falling markets.

Completing the trade:

A trade has two stages. The entry and the exit.  In FOREX they can be one of the two.

  1. You enter by Buying the pair, you exit by Selling the pair (ie you went Long)
  2. You enter by Selling the pair, you exit by Buying the pair (ie you went Short)

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