Short Position Definition. A Short Position in forex trading is the purchase of a currency or currency option with the expectation that the currency will depreciate over a specific time period. For a currency pair when quoted, the short currency is the second one listed in the pair and the price is the “Bid” part of the quote. It is the opposite of a long position. For example, if you expected the U.S. Dollar to depreciate over time and were given a quote for the “EUR/USD” pair of $1.3010/15, then you would receive $1.3010 for each Euro liquidated. Forex traders go short on a currency for an extended period of time when they expect the fundamentals of the respective country’s economy to under-perform the other one. This trading strategy is the opposite of the popular Carry Trade where a forex trader will go long on a currency when the interest rate differential suggests that the central bank is raising rates to cool down an overheated economy, while the other country may still be in economic recovery. A current example of this phenomenon in 2010 is the “AUD/USD” currency pair. In any currency transaction, it can be said that you are going long in one currency while going short in the other, depending on the order of the currency symbols in the pair traded.
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.