Currency investment strategies

Currency investment strategies differ based on the person who is investing, their risk tolerance, and their understanding of the market. The Forex market, or currency market uses very similar terms for describing market position as other financial markets. Your investment strategy relies on a thorough understanding of the meaning of these terms, your position in the market, etc. Consider the following:

No matter what your currency investment strategy, it is imperative that you know what it means to go long, go short, and square up.

Going long is the first market position we are going to look at. It is when you buy a security and you wait for the price to go higher before you sell it. It is the buy low, sell high approach that most people understand, as it is often used in other financial markets, not just currencies. When you go long, you wait for prices to move higher, then you sell at a higher price than you bought for, gaining a profit. When you want to close a long position, you sell what you have bought. If you buy at different price levels, this needs to be taken into consideration as you create your trading strategy. Buying at different price levels means adding to long, and getting longer.

Getting short is the next market position we are going to look at. This is when you sold a security you have never owned. You borrow the stock so you can sell it. You sell a currency pair, and sell the base currency and buy the counter currency. Getting short means making an exchange in the opposite order and according to currency pair quoting terms. The idea is to look for a pair price to move lower so that you can buy it back at a profit. If you sell at various price levels, it is called adding to shorts, and getting shorter. This is a less commonly known and understood strategy for currency trading, but among currency traders, it is just as common as going long.

Selling high, buying low is just as common as buying low and selling high. Why? Because the investing strategy is based on the relative values between two currencies, not a single commodity or security. Thus, it does not matter which strategy you take, as long as you understand the goals, and how to trade accordingly. In addition, currency pair prices are just as likely to go up as they are to go down, which means that going short is a viable option because it helps investors leverage falling currency prices. It can be a hard concept to wrap your head around, but is a viable option.

Squaring up is the last position to understand for investment strategies in currencies. Squaring up means having no position, it is also referred to as going flat. It means you have no financial risk or market exposure.