making $ when price falls????

[pipdrip]

Hello, my name is Matt and I'm a newbee.

On several instances in the Pips School (I've gone thru it twice and have many pages of notes) it is mentioned that you can make money even when the price falls. How is this possible?

Could someone please explain this to me as I've searched your forum and am unable to locate anything on this subject.


Thank You,
Matt

[Deevz]

That's what is known as shortselling. You sell a currency you don't own, creating a debt which you repay by (hopefully) rebuying it for less than you sold it for. Thus you made money from the difference!

[mytwopips]

Originally Posted by Deevz

That's what is known as shortselling. You sell a currency you don't own, creating a debt which you repay by (hopefully) rebuying it for less than you sold it for. Thus you made money from the difference!

You are correct for the equities market.

But us fx traders slangly (and wrongly) use the term shorting when we are really just holding a long on the counter currency.


To Pipdrip,
Deevz gave you an excellent example of shorting but is kind of incorrect for fx. Please try to learn more about shorting using an equities tutorial. Then the BP school will make more sense of how it works for fx.

[Yarcofin]

Go back to the school and look closer, it's all there. Like Mytwopips said you always have something, it's not like equity trading where you are in debt.

[rhodytrader]

Originally Posted by pipdrip

On several instances in the Pips School (I've gone thru it twice and have many pages of notes) it is mentioned that you can make money even when the price falls. How is this possible?

When trading forex you are always long one currency (meaning you benefit when it rises) and short another (you benefit when that one falls). Your playing the relationship between them. When a forex trader says I'm long XXX/YYY that means they are long XXX, and by extension short YYY. Flipping it around, if that traders is short he's short XXX and thus long YYY.

Thinking of it in equity market terms doesn't really help because the mechanism is different. In forex what you're effectively doing in each trade is borrowing the short currency, converting it to the long currency, and placing that one on deposit. That why you have the interest carry and/or rollover on positions.

[IDR]

Opening an account in a forex broker more or less like opening two accounts in two different currencies at the same bank. Fx trading a bit like transfering between the two accounts back and forth.

[rhodytrader]

Originally Posted by IDR

Opening an account in a forex broker more or less like opening two accounts in two different currencies at the same bank. Fx trading a bit like transfering between the two accounts back and forth.

Not really because that implies having the actual funds which are involved in the transaction. It's not like you've got a EUR account and a USD account and that you flip the money back and forth between the two. When you're forex trading you're not trading your own money.