The Concept of Short / Long on Forex

Convert Pounds to DollarsThe calculation of foreign exchange position allows measuring the exposure to currency risk for an investor.

 

The currency position is qualified long, since the assets held by an investor are greater commitments that it may have in that currency. Because of its position, the investor anticipates the increased valuation of the currency held. The risk for investors is that the currency held depreciates.

 

The currency position is termed short, when the assets in foreign currencies are lower than commitments in that currency. Because of its position, the investor expects the fall in the value of the currency in which it is seller. Currency risk corresponds to an appreciation of the currency sold.

 

It is possible for an investor to have a long position on a short-term maturity (buying of one currency in cash) and a short position on a long maturity (sale), and vice versa.

 

The exchange risk is so short term, the depreciation of the currency then held in the long term, the risk is that the appreciation in the currency.

 

Financial institutions and specialized in Forex financial institutions often describe the position in the short-term economic position and the long-term structural position.

 

Example of a long position in the Forex (buyer)

 

Whenever an investor anticipates an increase in the value of one currency against another currency, it is positioned as a buyer of the currency to be valued and the seller as he anticipates having to devalue. A long position is taken when it is for instance buy pound and sell the dollar. Therefore anticipate an appreciation of the pound and a fall in the value of the dollar.

 

Example of a short position (short or short) Forex

 

Whenever an investor anticipates a decline in the value of one currency against another currency, it takes a position as a seller of the currency as it considers being devalued and that the buyer expects to be as value. A short position will be to sell the pound and buy the dollar. Therefore anticipate a depreciation of the pound and a rise in the value of the dollar.

 

 

Originally posted 2013-07-12 04:10:34. Republished by Blog Post Promoter