What is the Difference Between Buy and Sell in Forex?
- August 1, 2021
- Posted by: Daniel Richard
- Category: Forex Trading
Buy and sell are the essential part of any trading because it is not possible to trade without buying and selling. So, in the forex market, you cannot imagine any existence of this market without buying and selling. Buy and sell are two different things; one is taking currency, and another is providing currency.
Buying is completely different from selling in forex trading. In this article, you will get an exact idea about the difference between the two.
What do “Buy” and “Sell” Mean in Trading?
At the time of opening a position in the forex market, generally, traders buy currency or assets. So, the opening position is the buying position. On the other hand, at the time of closing position, traders sell it to the market. Therefore, the closing position is the selling position. Buyers think that the assets or currency value will rise, and sellers believe that the value of the assets will fall.
While opening a position in a market with the trading provider or the broker, the broker will present two prices. When the price is above the market, and you want to deal with buying, basically, you will open a long position. But, you will open a short position at the time of the sell position because the price will be under the market. So, spread means the difference between buying and selling price, and the broker takes spread from the trader to promote the market situation.
What is a Long Position?
In traditional trading, a long position means when a trader believes that their buying asset or currency value will rise, and they keep it for a long time to sell later. Traders take a long position for profit. They will not sell their assets or currency until the price goes up.
For example, suppose a trader takes to trade in a currency pair like EUR/USD. He buys USD by using EUR and expects that the EURO currency rate will go up. For this reason, the trader will wait until this particular currency value goes up.
For taking a long position, there is no need to buy a tangible asset that means the future contracts can provide you the chance to accept a long position. You expect that the value of this property will go up.
What is a Short Position?
The short position is a strategy when a trader believes that the price will fall and he thinks he will sell his buying asset within a short time. The short position is also called shorting or short selling. You are making a quick trade because of your beliefs and think you can buy assets for profit in an extended position.
Traders borrow the asset from the trading provider and quickly sell this at the current market price when the dealer thinks that price may fall. Short selling is the opposite of long, where (long selling) trader’s main target is to earn profit.
For instance, think you want to trade EUR against the USD (EUR/USD). You want to take a short position because you believe that the price will fall. The existing market rate is 3218, so you want to sell in this situation.
If your thought is correct, you will get profit. It would help if you sold your asset as soon as possible because the market price will fall. Your trading will be slightly profitable in short selling.
How to Go Long and Short on Markets?
The CFD trading account can be opened for taking a long or short position in the market. CFD is the short form of “Contract for Differences”. It is a financial contract which refers to the difference between the opening and closing trade.
CFD will help you speculate on the financial markets, which are forex, shares, and commodities. You can also take a position without any ownership of the underlying asset. For buying and selling, the long and short positions use leverage, which means it must keep the small deposit to gain the investment value. You may gain profit or lose.
How Buyers and Sellers Affect the Market?
The supply, demand, and the price of a market are directly affected by the buyers and sellers. The main reason for the price movement is that one group (buyer/seller) surpasses the other. When the buyer surpasses the seller, generally, the demand of any market rises, and that’s why the price will increase.
On the other hand, when the seller surpasses the buyer, the supply will increase, and the price goes down. So, the buyer and seller affect the demand and supply, and the supply and demand affect the price of the market. Buyers can get the advantage from the seller if the supply is more than the demand. The seller also can get the advantage from the seller for the opposite position.
Buying and Selling in Summary
This summary will be helpful for better understanding and remembering about buying and selling.
- As a trader, you will be something buyer and sometimes seller in a financial market.
- You will take a long position when you buy and expect that the price will go up.
- When you sell expecting that the price will fall, and you will take a short position.
- You can take a short or long position by using the CFD.
- While the buyer surpasses the seller, demand and, at the same time, the price also increases.
- While the seller surpasses the buyer, demand decreases, and the price goes down.