Put simply, Forex markets go both up and down. Every regular guy you chat to on the street is going to be able to tell you that. So why do so many investors only buy and hold assets like shares in a company or commodities such as gold? What I find even more questionable, is why do these ‘buy only’ investors sell their assets when they know the market is going to go down, but don’t do anything else to profit from the move? They predicted it was coming, but they do nothing!
Wouldn’t it be great if instead of just selling your assets when you predict a fall in the market, you could profit from your prediction too? Forex trading isn’t like investing in stocks where you just buy and hold. Trading Forex gives you the opportunity to profit in ALL market conditions. Whether the market is going up or going down won’t bother you as you’ll see trading opportunities in both directions.
As we described on the Forex currency pairs lesson, when trading Forex, you cannot simply buy or sell a single currency. In Forex, currencies are written in pairs meaning that you must buy one currency pair by selling another (and vice versa).
If you want to buy a Forex currency pair, then you are going long (or taking a long position). This means that you want the base currency to rise in value when compared to the quote currency so you can sell it at a higher price. This is straight forward, but what if you wanted to profit in a falling market?
On the other hand, if you want to sell a Forex currency pair, then you are going short (or taking a short position). In this scenario, you want the base currency to fall when compared to the quote currency so you can buy it back at a lower price.
Try taking both long and short positions yourself on a VT Markets MT4 demo account.