Never miss a story from David Bradfield

Subscribe to receive daily updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to David Bradfield

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

Understanding the basics of going long or short in forex is fundamental for all beginner traders. Taking a long or short position comes down to whether a trader thinks a currency will appreciate (go up) or depreciate (go down), relative to another currency. Simply put, when a trader thinks a currency will appreciate they will “Go Long” the underlying currency, and when the trader expects the currency to depreciate they will “Go Short” the underlying currency.

Keep reading to find out more about long and short positions in forex trading and when to use them.

What is a position in forex trading?

A forex position is the amount of a currency which is owned by an individual or entity who then has exposure to the movements of the currency against other currencies. The position can be either short or long. A forex position has three characteristics:

  1. The underlying currency pair
  2. The direction (long or short)
  3. The size

Traders can take positions in different currency pairs. If they expect the price of the currency to appreciate, they could go long. The size of the position they take would depend on their account equity and margin requirements. It is important that traders use the appropriate amount of leverage.

DailyFX features IG client sentiment for a full overview of what positions traders are taking in the forex market.

What is a long position and when to trade it?

A long position is an executed trade where the trader expects the underlying instrument to appreciate. For example, when a trader executes a buy order, they hold a long position in the underlying instrument they bought i.e. USD/JPY. Here they are expecting the US Dollar to appreciate against the Japanese Yen.

For example, a trader who has bought two lots of USD/JPY has a long position of two lots in USD/JPY. The underlying is the USD/JPY, the direction is long, and the size is two lots.

Learn more about forex quotes with our guide to reading currency pairs.

Traders look for buy-signals to enter long positions. Indicators are used by traders to look for buy and sell signals to enter the market.

An example of a buy signal is when a currency falls to a level of support. In the chart below USD/JPY depreciates to 110.274 but is supported at that level multiple times. This level of 110.274 becomes a support level and offers traders a buy-signal for when the price dips to that level.

USDJPY dips to a support level offering a buy signal for traders

An advantage of the forex market is that it trades virtually 24/5. Some traders prefer to trade during the major trading sessions like the New York session, London session and sometimes the Sydney and Tokyo session because there is more liquidity.

What is a short position and when to trade it?

A short position is essentially the opposite of a long position. When traders enter a short position, they expect the price of the underlying currency to depreciate (go down). To short a currency means to sell the underlying currency in the hope that its price will go down in the future, allowing the trader to buy the same currency back at a later date but at a lower price. The difference between the higher selling price and the lower buying price is profit. To provide a practical example, if a trader shorts USD/JPY, they are selling USD to buy JPY.

Traders look for sell-signals to enter short positions. A common sell-signal is when the price of the underlying currency reaches for level of resistance. A level of resistance is a price level that the underlying has struggled to break above. In the chart below USD/JPY appreciates to 114.486 and struggles to appreciate further. This level becomes a resistance level and offers traders a sell-signal when the price reaches for 114.486.

USDJPY reaches for resistance offering a sell signal for traders

Some traders prefer to trade only during the major trading sessions, although if an opportunity presents itself, traders can execute their trade virtually anytime the forex market is open.

Further reading to support your forex trading

If you are new to forex trading, we recommend downloading our free forex for beginner’s guide which takes you through the fundamental steps to getting started. It is also important to understand the number one mistake traders make when trading forex.

When you start your trading journey, you can download our free currency forecasts covering the major FX pairs. These are compiled by our experts here at DailyFX who also host daily trading webinars and provide regular updates on the forex market.