Forex Trade Terms

The major goal of traders on the forex market is the gaining of profits. This is done through the trade of one currency for another under the consideration that the price or exchange rate will change in such a way so that the value of the purchased currency becomes greater than the value of the sold currency.

Long Position

Under the term long position one should understand the purchase of a currency with the expectation of an increase in its price and the gaining of a profit. This is true when the market experiences a rising trend. In order to get the eventual profit, the trader should sell the currency when its price rises to a higher level.

Short Position

Under the term short position one should understand the selling of a currency with the expectation of a decrease in its value. In order to pocket the resulting profit, the trader should purchase back the currency when its price really falls.

Open Position

Open position results from the buying or selling of a currency pair, which has not been followed by the corresponding selling or buying of the equivalent amount. Thus, the position remains open.

Bid vs. Ask Price

The price a market maker is willing and able to pay for a base currency in return to the quote currency is referred to as a bid price. On the other hand, the price at which a market maker is willing and able to sell a base currency for quote currency is referred to ask price. Generally, ask prices on the forex market tend to be higher than bid prices.

Spread

The spread represents the difference between ask and bid prices. If the currency moves in a favorable direction, the spread can be recovered. The forex market is characterized as being decentralized, meaning that there is more than one market maker. Thus, the amount of spread differs from one market maker to another.

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