So, I’m relatively new to Forex trading, and only recently I’ve been beginning to consider short trading, but I’m not certain if it would be a good idea or not. From my limited perspective predicting trends downwards seems to be significantly easier than predicting trends upwards. From that you would think that short trading would be more profitable, however, it doesn’t seem like too many people actually do it that often, so I’m uncertain. Can anyone who’s knowledgeable on this or has had a lot of experience short trading tell me if it’s actually worth it. Please leave a detailed response of why you think short trading is good/bad if you can. Thanks in advance
“From my limited perspective predicting trends downwards seems to be significantly easier than predicting trends upwards.”
Hi, could you elaborate on this, by giving us an example?
By simple definition, every trade you make is a short trade. You’re long one currency and short the other.
There is no particular bias toward longing/shorting in the forex market–one is not easier/harder to predict than the other. They are identical (no bias). It sounds to me like your inquiry has its roots in the stock market where shorting has a structural difference compared to longing. However, in forex there is no difference.
From BP school:
“Currency trading always involves buying one currency and selling another, there is no structural bias to the market. So you always have equal access to trade in a rising or falling market.”
One is not easier than the other and forex traders long just as much as they short.
Don’t worry if it’s long or short. Trade according to your plan.
Nothing wrong having a strategy that trades in only one direction. From my very limited understanding there are plenty of money managers out there that are only allowed to buy. Company policy and all.
There is nothing wrong with that, but you would be limiting your opportunities to profit as a retail trader. Besides, the majority, if not all, of the strategies posted on BP are omnidirectional–for good reason too. And only being allowed to buy is much more prevalent with money managers that handle equities, not so much forex.
As Rhody said every pair you are taking a long and a short. Therefore it would be foolish to only try to trade a pair in a certain direction. What if GBPJPY was JPYGBP, would you still only take long positions?
This isn’t the stock market. For instance you can’t short a mutual fund. You only buy a mutual fund and buy a part of each stock within that mutual fund.
Yes, everyone is bang on right, you buy one currency and short another, in Forex…
If you did invest in currency futures, then you could buy Euro and not sell anything, just buy Euro… or short it… and not
worry about what other currencies were doing… that’s a different thing altogether, though.
No such thing as a long only fx trade.
But in equities, bonds, and commodities, long-only traders avoid shorts because their profitability is bounded by ZERO and they decompound rather than compound intratrade.
Many major CTAs (Jerry Parker for example) still take shorts to avoid excessive portfolio correlation.
-Adrian
Thank you guys for all the explanations, I appreciate it. I did stocks prior to this, which are a fairly different ball game
Please gentleman correct me if I’m wrong but as an armchair speculator do I really buy one currency and sell the other. I thought this only occurred if you had DMA. I’ve always treated my trading as a bet long or short and does it really matter.
To be totally technically correct, you go long one currency and short the other. You never actually own anything.
Think of a trade in forex as playing the relationship between two currencies in much the same way you might do a spread trade between two stocks (long one, short one) in expectation that one will do better than the other.
Guess on paper only.
Good part of transactions on Fx are done for speculative purposes (getting profit from price fluctuations) and I suppose no need for certain currency volumes to change hands to get basically the same result. Moreover it would affect on transaction costs as well (to the side of increase of course).
The same principle works in CFD, which is basically a financial derivative or betting in its plain sense where positions are offset by paying difference between current and contract price. There is minor but important difference between ECN and STP type of executions though, I had a talk with Tickmill support about that before signing up with them, will write later as soon as recall it.
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