This may be dumb but...
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  1. #1

    Question This may be dumb but...

    Okay, I've read through the babypips.com entire school guide for the first time (there will be others, I'm sure..), and I'm still not 100% clear on this--here's my question:

    How can you profit from a trade when after entering, the exchange rate falls. For example, if I'm trading EUR/USD, and when I enter the trade, the exchange rate goes from 1.3350 to 1.3310, how would I profit? I'm assuming I've purchased the base currency (EUR) and sold (USD) at 1.3350. What would I do at 1.3310 to take a profit? If anyone can explain this to me in plain english, I'll be very appreciative!

  2. #2
    Join Date
    Dec 2006
    Location
    Cairo, Egypt
    Posts
    327
    The rate does not have to go up only to make profit. You can still make profit when it falls. here is how

    What you would do is Selling (Shorting) EURUSD not Buying (Longing). Selling the base currency.

    If you are selling EURUSD, you make profit when the rate falls.
    If you are buying EURUSD, you make profit when the rate goes up.

    When you sell EURUSD, you sell EUR and buy USD. and the rate should go down in order for you to make profit.
    When you buy EURUSD, you buy EUR and sell USD. and the rate should go up in order for you to make profit.

    Let us assume the rate of EURUSD is 1.2900 and you are BUYING EURUSD. It should go up . example 1.2950 (up) to make profit.

    Let us assume the rate of EURUSD is 1.3300 and you are SELLING EURUSD. It should go down . example 1.3250 (down) to make profit.

    If you buy EURUSD and it goes down, that is a loss.
    If you sell EURUSD and it goes up, that is a loss.
    Last edited by topchess; 12-09-2006 at 11:56 PM.

  3. #3

    Default thanks

    Thank you for clearing that up for me. I guess I was getting confused by thinking that I was only buying one currency instead of remembering that if I'm buying one, I'm selling the other. I get it now, thanks!

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