In financial markets such as foreign exchange, traders will sell short currencies when they believe the value of what they are trading will fall. With a stock, you will sell borrowed shares you do not own and agreeing to return those in the future.
You make a profit equal to the difference in two values if the share’s value falls from the time you initiate the short sale until you close it out. You will close it-out by buying the shares later at the lower price.
Just think that you are betting that currency will fall in value and you will make money. It is the same general principle to going short in the forex market. Every forex transaction involves a long position in other currencies.
Important Things to Consider in Sell Short Currencies
When shorting in the forex market, in the letter, you do not have to borrow a certain amount of the currency that you want to short. Going short in forex is very simple. You need to know that all currency pair has a quote currency.
They also have a base currency. In the currency pair, the base comes first and the quote currency come second. For example, the USD/EUR pairing, the U.S. dollar is the base currency and the euro is the quote currency.
Another component of forex trading is about pip values. Pip is use to measure changes in price for every currencies except the Japanese yen. for every currency, a Pip is 0.0001 of the value. pips is 0.01 yen when the yen is the quote currency.
The standard lot of 100,000 units of the base currency areused by many currency transactions. They can also be done in micro lots of 1,000 units or in mini lots of 10,000. for example the GBP/USD rate is 1.3452.
it is mean that 1 pound is valued at $1.3452. you will sell short currencies at the rate if you expect the value of the pound to fall against the dollar. The important thing is that broker may keep a difference between the price.
If you would have made 11 pips if you bought the pair after the rate went to 1.3441. a set commission for each currency trade perhaps $5 of a standard lot may charged by best forex broker.
Keep Risk in Mind, the Difference Between Going Long and Going Short
You must keep risk in mind-in particular and the difference in risk between going short and going long if you are thinking about shorting a currency pair. Watching the currency’s value falling to zero is the worst-case scenario.
The scenario use if you were to go long on a currency. Because the value of the currency cannot go lower than zero, that scenario would be bad for your investment portfolio and your loss would be limited.
On the other hand, if you are sell short currencies, you are betting that it will fall when the value keep rising. It mean that there is no limit to how much money you could lose.
You can reducing your risk in one way is to limit orders on your short and put in stop-loss. Bt putting in stop-loss, if the currency you are shorting rises to certain value, your broker will close your position.
It can protect you from further loss. On the other hand, a limit order can eliminatefuture risk and locking your profit. When the currency you are shorting fails to your designation value, a limit order will instructs your broker.
There is no central marketplace for the foreign exchange market, so you must choose a trustable forex broker to cooperate with. didimax forex broker can help you to conduct your trading activity. Your trading to sell short currencies will be easy and pleasing.
