Buy / sell = long / short
Before opening any position, each operator has to determine if they want to open a BUY or SELL position. If you want to buy the base currency and sell the quoted currency, this means that you expect the base currency to increase to sell it at a higher price. Such positions are used to be known as long positions. On the contrary, if you want to sell the base currency to buy a quoted currency, this means that you want the base currency to fall in price to buy it at a lower price. These positions are known as short positions. Therefore, keep in mind that Buy = Long and Sell = Short.
When we talk about currency prices, we have already mentioned that they are called exchange rates. Anyway, it is very important to mention that in Forex, each quote has two prices – Offer Price and Order Price.
These pairs are usually denoted by a “/” bar, where the Buy rate is in front, and after the Sale rate, such as USD / JPY 104.75 / 104.85. The offer price is the price at which the agent is ready to buy the base currency for the quoted price, while the sale price is the price at which the company is selling the base currency for the quoted price.
Therefore, it can be understood that the concepts of buying and selling in relation to you are actually “reversed.” Buying and selling in this formulation are not done by you, but by the party that offers you a quote. More precisely, if you need to buy a base currency, you can do it for the Ask price, while selling, you need to do it through the Bid price.
Forex trading or trading example
Assume that the current exchange rate of EUR / USD is 1.3088 / 1.3090. According to some technical analyzes, it has meant that the Euro will increase in value. That is why he makes the decision to buy 10,000 EUR (0, 1 lot) at 1.3090 (the sale price). So, you bought 10,000EUR and paid the US $ 13,090 for that.
No one has to have those US $ 13,090 to buy euros. Your deposited money may be much less, but due to the leverage provided by the broker, you will have the opportunity to negotiate with large volumes. You should only deposit one amount, which is considered the margin, to provide you with a larger amount of virtual credit. For example, you can have a leverage of 1: 100. In this case, you must deposit only $ 130.9 in your account to open that position.
If your predictions come true, and the Euro has risen to 1.3199 / 1.4001, then you decide to sell it. In this case, you have to sell your Euros at the sale price (1.3199).
Therefore, it is buying the USD again, but it is selling the Euro at a higher price (1. 3199). So, we finished at USD 13,199. As the company takes USD 13,090, our profit becomes $ 109 dollars.