No more jokes, I promise. This is because for you to profit, the value of the ABC Inc. We will talk more about that later. Another way to understand the difference between long and short trades is that if you make a trade where you want the price to rise in a chart, you are long of that instrument. If you want the price to fall in a chart, you are short of that instrument. Most major economic powers agreed to fix the value of their own currency to that of the greenback. In the U. For this reason, there was very little Forex trading before the s.
Speculative traders instead focused on stocks and commodities. Traders could make money by buying stocks and commodities cheaply and selling them at a higher price.
Traders would go short of stocks or commodities by borrowing the stocks or commodities in question, and then selling them, before buying them back later at a hopefully cheaper price. The stocks or commodities could then be returned to the loaner, and a profit taken from the difference between the original sale price and the buy-back price.
Therefore going short could be very different to going long. This is arguably at least partly due to the fact that if you sell stocks that you have borrowed money to pay for, you are more likely to panic if the trade starts moving against you, than if you own stocks while the price is falling. It is really all the same. The only important factor regarding the long and short trades question in Forex is any interest you might need to pay to your Forex broker if you hold a position overnight, or alternatively receive from your broker.
This is calculated by reference to the interest rates at which banks lend particular currencies to each other, at least in theory. Unfortunately, Forex brokers sometimes use this as a subtle way to make some extra money from their clients. If the inter-bank interest rate for USD is higher than it is for EUR, your broker might be paying you some money each time you hold the position over the New York rollover time i.
On the other hand, if the interest rate on the currency you are long of is less than the rate for the currency you are short of, you will be charged some amount representing the difference every day that the position is kept open. This means you can potentially make just as much profit in a falling market as in a rising one, but when you are making short trades in stocks or commodities , be careful! Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch.
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Report Broker Scams Forex Widgets. Adam Lemon Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch.
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