What Does It Mean to “Go Long” in Forex?

What Does It Mean to “Go Long” in ForexHalal explained by professional Forex trading experts the “ForexSQ” FX trading team.

What Does It Mean to “Go Long” in Forex?

When you are “long” a currency, you are simply placing a buy order on a currency pair.

In forex trading, all currency pairs have a base currency and a quote currency. The quote will usually look something like this: USD/JPY = 100.00. The USD is the base currency and the JPY is the quote currency. This quote shows a rate of $1 US Dollar being equal to 100 Japanese Yen. When you place a long trade on this currency pair, you are going long on the USD Dollar and simultaneously going short on the Japanese Yen.

It sounds complicated, but you would make this trade if you believed that $1 was going to become more valuable than 100.00 Japanese Yen (i.e. $1 = 101.00JPY)

Trend followers who recognize trend acceleration are often quick to go long on a trade and hope to stay in that trade until the trend expires.

What Components Complement Going Long in Forex?

Some of the reasons that traders go long come from technical and fundamental developments. From a fundamental perspective, economic news releases can start to overshoot or surprise economists expectations. This shows that the economy is doing better than many people expected and there’s room for upside on that currency, and therefore, it may be worth going long. Another fundamental reason that Forex traders may decide to go long a currency pair is when a central bank announces their plans for monetary tightening, which historically tends to lift their currency.

Technical reasons for going long often include price breaking through price resistance or a price ceiling showing surprising strength and that a new imbalance in the market may be developing that could turn into a strong trend. Other reasons traders tend to go long is when the price comes down to well-defined support or a price floor.

What New Traders Need to Understand

It is important for new Forex traders to understand that any time you are in a currency trade, you are always long one currency of the pair. Even if you were short the pair, you are technically short the base currency and long the price or counter currency.

To borrow an example from another market, when you buy the stock of a company like Apple (NASDAQ: AAPL), you are going long Apple and short the US dollar because you feel the value of a dollar will not grow as fast as the value of Apple stock.

Another way to look at this relationship is APPL/USD. Also, when you sell your stock back, you can think of it as going long the US dollar in short the stock because for one reason or another you now believe it is more valuable to have cash then it is the stock.