In finance, the existence of a debit or creditor balance that an investor has for a certain currency at a particular time is known as a currency position.
Through participation in the market by investing in a currency, a person (both physical and legal) can adopt a certain position in currencies according to their debtor or creditor situation.
The adoption of one position or another in reference to a currency will be influenced mainly by speculative reasons, since the decision by the investor will be based on the expectations that exist or that he perceives about the future evolution of the value of the same.
This means that the individual investor chooses two different modalities with respect to the currency in which he begins to operate financially: either a short position or a long position.
Based on the search for profits resulting from the purchase and sale of a currency, investors choose to move their portfolios in these assets taking into account the evolution of the values of the different currencies. Market volatility plays an important role in this.
Currency position types
Based on estimates of increase or decrease in the value of the currency in which it is invested:
- Short position in currencies, if the currency is expected to suffer a loss in value in the short and medium term
- Long currency position, if a future increase in value is expected for the currency
Simultaneous adoption of currency positions
It is important to note that contrary to what happens in markets for other types of financial assets, in the foreign exchange market it is usual to take short and long positions simultaneously.
This is explained by the fact that one currency is always bought or sold in terms of another. In other words, the sale of yen for example can involve a consideration in dollars or euros. Therefore, an investor who sells yen for dollars in exchange will be relying more on the future value of the dollar against the yen.
Tags: USA derivatives administration