Forex positions – open, close, short, long

Some of the important terms in forex are: “open position“; “close position“; “short position” and “long position“.

The amount of security owned or currency or even owed by a forex trader or investor is called Position.
Long Position is that position, which was obtained by buying in anticipation of an increase in price.
Open:

Every single position contains 4 major characteristics:

1. You trade with particular currency pair.
2. You stand short or long on the market – meaning that you’ve bought or sold, respectively.
3. The size of the position in increments of 100,000 of the base currency.
4. The exchange rate at which the position was opened.

Here is a simple example: a “EUR/USD, 500, S, 0.9220″, means the forex trader Sold 500,000 Euros for U.S. Dollars at an exchange rate of 0.9220.

Close:

The close rate is the current exchange rate, that the forex trader could exit the position using a market order. The current bid will be shown as the close rate, if you’re long the market, as well as the close will reflect the current forex market ask price, if you’re short.

Going short – going long

After buying a currency, you are “long” in this currency. Long positions are entered into at the offer price. You will buy 100,000 GBP at 1.5852 USD, if you are buying one GBP/USD lot quoted at 1.5847/52.

After selling a currency, you are “short” in that currency. Short positions are entered into at the bid price, which is 1.5847 USD in given example.

You are always simultaneously short in one currency and long in another one, thanks to the symmetry of currency transactions. Just an example: you are short in sterling and long in US dollars, if you exchange 100,000 GBP for USD.

Closing out

The position that is ongoing and live is the one called – open. Its value will fluctuate in accordance with the exchange rate in the market, as long as the position is open. Any kind of losses and profits will exist on paper only and will be reflected in your margin account.

Let’s give an example: if you have gone long in one lot of GBP/USD (at the prevailing offer price) you can close out that position by subsequently going short in one GBP/USD lot (at the prevailing bid price).
Your opening and closing forex trades must the conducted through the same intermediary. You cannot open a GBP/USD position with Broker A and close it out through Broker B. Which means that closing out your position, you conduct an equal and opposite trade in the same currency pair.