After you have gained a proper trading education and formulated a well-tested trading plan via your demo account, you will begin walking down the serious path of trading real money. Eventually, you will take a position as determined by your strategy. One possible position involves going long. This means that you have decided to buy a particular currency based on your belief that the price of the same will increase, allowing you to make a profit when you close out the position. Going long, therefore, is the same as buying the currency.

Because currencies are traded in pairs, it is important to note that when you say that you are going long on the EUR/USD, for example, you are really saying that you are going long on the Euro rather than the U.S. Dollar. That is because the reference as to the position taken is made specifically to the base currency, i.e. the currency that appears in the first position of the pair, as does the Euro in this case. Incidentally, the currency occupying the second position in the pair is known as the quote or cross currency.

Going Short

This term is perhaps a bit more difficult to understand at first than the previous one. Fortunately, as you might guess, going short is the opposite of going long. Here, the trader is selling a particular currency. Confusion may occur here in trying to understand how you can sell something you haven’t previously purchased. One way to clear your thinking about this is to think of purchasing the “right” to sell as opposed to selling the actual currency you do not have in hand. Although not necessarily a perfect analogy, let’s borrow from the real estate investment arena, particularly regarding the technique of house-flipping. Many real estate investors involved in house-flipping may contract to buy a house, but before the actual purchase, an arrangement will be made with a new buyer to whom the house will be ultimately flipped or sold very quickly. In the FOREX market, the broker is responsible for facilitating the bringing of the buyer to the transaction in which you are simultaneously selling the same currency.

Trading Tip

In the event you utilize charts to view the movement of the currency pair you are trading, remember that when the line graph moves upward, the base currency is going up in value as against the cross or quote currency. Obviously, when the line goes downward the opposite is true. By way of example, if you go long on the EUR/USD and the graph line thereafter moves upward past your entry point, then you are in the profit zone. If you go short on the same pair and the line graph goes downward past your entry point, you are likewise experiencing profitability.

Sandy Robinson, J.D., Copyright 2007

By: Sandy Robinson, J.D.

*Fixed rates versus floating rates

*Currency pairs

*Bid Prices versus Ask Prices

*Spreads

*Lot Sizes

*Margins, Margin Calls and Leverage

*Pips Values and their role in calculating profit and loss

*How to evaluate leading economic indicators

*How to read Forex signals and charts

This is just the bare minimum. A really good course should also walk you through a variety of trading examples, and show you how to perform ‘test trades’ yourself using a demo account with a reputable broker.

Another thing you can do to help speed your learning process is to immerse yourself in the literature of the market. There are scores of books and magazines available on the subject both online and off. You might want to have a look at the free, online magazine called Currency Trader http://www.currencytradermag.com

Finally, consider enhancing your knowledge of other financial marketplaces. You will find some concepts and terms repeated when reading about how to trade on the Stock Market, or how things like interest rates fluctuate for bonds, bills and other instruments.

This is especially useful if you feel more comfortable in one area of financial knowledge than other because you will be able to see some related concepts from Forex in a context with which you are already familiar.

By: Karen Kaminski