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Forex Positioning and Profiting

The forex or the foreign exchange market is where the simultaneous trade of currencies is carried out. There are basically two ways to earn income in the currency market. These are buying low then selling high, and selling high then buying low. It's the backbone of positioning and profiting in the forex.

Currency pairs are traded at the same time in the currency market. Two currencies are paired up to denote a currency pair which is divided into the base currency (the first currency) and the counter currency (the second currency). When you buy a currency, you are said to be taking a long position and when you sell a currency, you are said to be taking a short position.

The first way to earn income in the currency market is buying low then selling high. A trader who opts for this strategy will take a long position. This approach is favored in times of increasing market prices.

The second approach is selling high then buying low. A trader who opts for this strategy will take a short position. This approach is favored in times of decreasing market prices.

A trader who takes a long position anticipates that market prices will trend up. When currency is bought at a low price and is sold at a higher price, profit is then realized. However, when a long position is taken but prices are trending down against it, the trader will incur losses and would be better off selling at a minor loss than risk having it eat away into one's capital.

A trader who takes a short position anticipates that market prices will trend down. When currency is sold at a high price and then bought back at a lower price, profit is realized. This may not be a traditional approach but this allows traders to profit when currency prices drop. When currency is sold the net effect on one's counter currency holdings will go up. Later on, when currency prices drop, a trader will profit because one can buy back more of the base currency with less of the counter currency. But, as with a trader who takes a long position, there's also the risk of prices going against the short position.

Buying low and selling high are forex strategies when traders take a long position to earn income when currency prices go up. On the other hand, selling high and buying low are strategies when traders take a short position to earn income when currency prices go down. Market movements are trending up and down, over and over again. This is the volatile nature of the currency market. Positioning and profiting depend on timing and executing trades when trends actually change in your favor and minimizing losses when they don't.

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