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Please explain shorting to me...
How can we sell currency that we do not own?
over 2 years ago
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Short selling means that you are "borrowing" an asset so that you can sell it now with the intention of buying it back later on to return to the lender. For instance, you think that a particular security is overpriced at the moment and you want to sell it now but you don't own it. You can simply borrow this security from someone and promise to return it in the future. You are then able to sell this security right now (while the price is, say, $100). After some time, the price of the security drops (to $50 for instance), just as you expected. You can then use the profits from your initial sale in order to buy back that security so that you can return it back to the person you borrowed it from. Overall, you end up with a $50 gain!
In forex, when you are shorting a particular currency pair, you are technically selling the base currency and buying the quote currency simultaneously. It doesn't happen exactly like I described it above but it's almost the same concept since your broker is the one who finds a counter-trade so that your short order can be executed.
over 2 years ago
Answers (2)
"Shorting" is the act of selling currency, commodities, or stocks that you do not currently own. In forex, the "base" currency is the one being sold. In contrast with going long, it is beneficial for a short position when the price declines. Here, you can cover or buy back the position that you sold at a lower price and return the same amount to where you got it. The difference between the two prices would be your profit.
over 2 years ago
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Along with the above comments as to equities...
In Forex there is no real shorting because you are really buying one of the pairs.
Forex example, USDJPY, when you expect the chart to go up you are buying the USD and when you expect the chart to go down you are really buying the JPY.
That is why they never put an Uptick rule in currency trading because they consider you are buying one or the other currencies that is why you have to be careful of roll over interest because you really own one of the two currencies of the pair you are trading.
over 2 years ago
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