Any Forex transaction implies a period of time. The period begins with the opening of a position – you either buy a currency pair when the exchange rate should increase or sell it, expecting the price to fall. Closing a position is the reverse operation – you sell what was previously bought or buy out what was previously sold at a new market price.
The article covers the following subjects:
How to open forex position: definition & examples
First, I’d like to explain what is the meaning of open position. To make money on Forex trading, you should sell at a higher price than you have bought. Therefore, making a profit always implies two transactions; you both buy and sell.
One of the trades will be the initial decision – when certain market conditions imply a further change in the price in the right direction.
When the asset price goes below its all-time high, there is a possibility of its rise in the future.
The second trade will fix your trading result – if the price has changed according to your forecast or has started moving in the opposite direction.
If your forecast was correct, you will record a positive result, i.e., you will take the profit.
If your forecast was wrong, you will record a negative result, which is a loss.
An open position is when you enter a buy or sell trade but haven’t yet received a financial result. If you buy an asset expecting it to increase in value, you have an opened buy position. If you sell a currency pair, expecting it to depreciate, you hold a sell position.
Have you come across such terms as a ‘buy,’ a ‘long,’ or a ‘long position’ relative to open position definition? All these concepts mean a buy trade.
A ‘sell,’ a ‘short,’ or a ‘short position’ means opening a sell position.
You should understand that all those slang words mean a trading operation, not the intention to buy or sell an asset in the future under particular market conditions.
How to enter a forex trade?
Before you decide to enter a Forex trade, I recommend studying the mechanics of the market and at least a couple of trading strategies. Thus, you will understand the basic conditions favorable to enter a trade.
The next step is to determine the entry rules.
There are two of them:
Option 1: you enter by market order. You open a position at the best market price. In terms of psychology, it is more comfortable compared with the pending orders. After you put a market order, you are 100% in the market.
However, it is a drawback. If your forecast is wrong, you will have a loss. You can avoid losing trades by using pending orders.
To enter by market, you should select the parameter ‘now’:
Next, you choose the position direction (buy or sell), and volume
An example of opening a long position by the market:
An example of opening a short position by market:
Entry option 2: Pending order. The trading order is delayed. It is presumed that favorable market conditions will appear.
To enter a forex trade setting a pending order, you should select the parameter ‘At the price’:
Pending orders come into two types:
Stop orders. They are set following the expected price direction. For example, the current EURUSD price is about 1.1850. But someone will consider the further uptrend to continue only when the price goes higher than level 1.1900. So, such a trader will set a stop order to buy at 1.1900. It will be a less profitable trade, but the trader will act according to the trading strategy.
To set a buy stop order, you need to set the price higher than the current one. Next, you specify the volume and click on the ‘buy’…