Making Sense of FX: Long and Short, Bid and Ask

It is not uncommon for novice traders, or those who wish to get into fx trading to feel like they are entering alien territory. After all, the fx market has its own colorful jargon that cannot be easily understood by outsiders. Plus, there is also the utter complexity of how the fx market works.

That is why it is always advised that you familiarise yourself with the market before you jump into fx trading. This includes understanding how the market works, the major currencies, and the likes. Aside from these, it is also important that you also know the most common terms being used in fx trading. Doing so would help you understand the market better and facilitate your communication with other traders. We will discuss four of these common terms in this article: long, short, bid and ask.

Going Long Vs. Going Short

Going long or short basically refers to the position you are taking when trading a currency pair. If you have heard of the expression of buying low and selling high, then this would briefly describe what going long means. This is a position you take when you buy a pair at a certain price in the hopes of selling it later for a much higher price.

Meanwhile, going short is simply the opposite of the long position. So if for example, the value of the currency pair is dropping or is expected to drop, a trader with a short position would sell it with the intent of buying it at a lower price later on.

Bid and Ask Price

These terms are quite straightforward. The bid price is the price that buyers are willing to spend to buy a currency pair. So if you are selling a pair, the bid price is the amount you will earn from the sale.

On the other hand, the ask price is the rate sellers are willing to sell the pair for. Now when you are buying a currency pair, the ask price is the amount you will spend to purchase it.

As you see, understanding these terms aren't so difficult. And the more you trade, the more familiar these terms become to you. We'll share with you more of the other common terms in future posts, so watch out for those.

For more fx tips, check out our fx trading tips section.