Shorting

[deyler]

I feel extremely stupid b/c I have asked this question at Forexfactory and got the answer but I cant visualize the concept. I just dont get it. I understand buying low and selling high but I cant understand this shorting thing. Can someone please explain this slowly and use every effort to "idiot proof" it for me.
Thanks

[a088801]

Originally Posted by deyler

I feel extremely stupid b/c I have asked this question at Forexfactory and got the answer but I cant visualize the concept. I just dont get it. I understand buying low and selling high but I cant understand this shorting thing. Can someone please explain this slowly and use every effort to "idiot proof" it for me.
Thanks

Okay, you dont need to look at it like you actually have to own something... it's not like you have to own eur/usd to sell eur/usd. look at it like placing a bet at a roulette table... when you place money on red 9 for example, you dont own red 9 to start with, you're just saying i bet its going to stop on red 9, so, when you "short" you sell, and by doing so you are basically saying i think it's going to go down, so i will sell and make money. does this make it make more sense?

[mayodele]

You buy 1 lot of a currency pair, it gets you into the market, that means you think the market will go long and when you sell same pair of currency, you get out of the market.

Lets assume you buy 2 lots of the same currency pairs, that means 1 lot will close your orginal position and 1 lot will remain in the market and that means you think the market is going short.

Dont look at it as if yo are buying or selling but look at it as you you are getting into the market by taking a position (long or short) and getting out of the same position when you do the opposite.

[PipDiddy]

A traders who "shorts" borrows shares (stocks) or currencies (forex) or any other financial instrument from their broker and sells them to another buyer. Proceeds from the sale go into the shorter's account.

Here's an example using a Tickle Me Elmos.

You believe Tickle Me Elmos are just a fad and believe its overpriced. Other people disagree. You think "Fine then, I will make money off you."

So you head over to Wal-Mart and ask the store manager if you could BORROW 100 Tickle Me Elmos. He idiotically agrees

You then drive over to your friend's house and say "Look! I have a 100 Tickle Me Elmos! I'll SELL them to you for $100 each."

Your friend says "Yes! 100 Elmos x $100 = $10,000. Here's $10 grand sucker. These Elmos will be worth twice that next week. Wait and see."

The very next week, Kick Me Elmos comes out and are an instant blockbuster! Nobody cares for Tickle Me Elmos anymore. Everybody loves Kick Me Elmos. Your friend is now stuck 100 Tickle Me Elmos that nobody wants and its fast becoming worthless.

You visit your friend again and he's in tears, "Nobody is buying. Even when I offer half price at $50."

You belch an evil laugh, "You dumb dumb sucker. But because you're my friend, I will BUY back all 100 Tickles Me Elmos for $10 each."

You pay him $1,000 and load up the Elmos in your phat ride.

You drive over to Wal-Mart, find the manager, and RETURN the Tickle Me Elmos.

You whip out your wallet and count yo cash.

You come out with a profit of $9,000. Bling bling! Time to buy mo' ice!

Your friend gave you $10,000 when you originally sold him the Elmos. You gave him $1,000 when you bought back the Elmos.