Could someone kindly explain what happens and the process that occurs when shorting a currency pair? I went short the nzd/usd pair on a demo in USD. Subsequently the pair dropped about 100 pips. My understanding is that my U.S. backed dollar is traded for a dollar backed by the New Zealand dollar. What am I actually holding when I “sell” the New Zealand dollar? My thought process is that If I bought a nzd and the exchange rate dropped (as occurred) someone else would buy for less than I paid, resulting in a loss. So, I understand that as a long trade. Still confused about the short side. Somebody?
In retail forex trading there is no actual exchange of currencies. You are just making a directional bet on the exchange rate.
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