January 21, 2013

Is Forex a Long or Short Term Investment?

The forex market is one which has garnered considerable attention recently, as more and more people have become involved in the investment opportunity. The main reason behind this is that it’s so accessible; nearly anyone can trade even without much starting capital. Because of the flexibility of trading foreign currency, there are a lot of different styles and methods of speculation, and what you get out of forex depends very much on what you put in.

Looking at all the different ways in which you could make money from forex is well beyond the scope of this article, but what we can look at is one of the main differences in the way people trade; going long and going short. This entire means is whether you are going to hold a position over a long period of time, or over much shorter periods on multiple occasions.

Going Long

Clearly, going long is for those who are patient. You can theoretically hold a forex trade indefinitely. If you think that the GBP is going to continually rise against the USD for the foreseeable future, then you may well invest in a large sum of British pounds, hoping that at some point in the future, which may or may not be defined, the value of the position will be much higher.

This method takes longer to see actual, realised gains because of course; you have nothing until the position is closed. This is the best if you’re looking for a means of investment rather than a means of earning a living.

In terms of risk, things can become unprofitable because, although some movement against you might be fine, large changes can mean you lose a lot of money. You then have the major issue of deciding whether to ride out the movement, at the risk of ending up losing a lot more if things don’t turn around.

Going Short

Many would argue that going short is an easier route to some extent, because instead of looking at long term economic patterns, you can trade simply by watching for indicators on a chart. Short term trades generally do not last more than a day, and in the case of scalping, can be minutes or even seconds. While gains are very small, because positions have less time to increase dramatically, the profits soon build up.

Because this short term method closes trades regularly, profits are realised into actual gains regularly. This means that this forex method is more similar to a full time job than what you’d traditionally consider investment. Many people do in fact trade like this part time to make some extra money.

The risk with short term trading is not making enough of a profit. With even the best traders, many positions will end up as losses, and the only way to be successful is for the profits to outweigh them.

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