Selling to enter a position & Buy to enter a position?

Hello im a Forex baby, just starting out. I have been reading babypips for a couple of weeks now, and watching videos on you-tube. I have to say babypips is a really great site. So i was watching some tutorial videos on you-tube, and there are a few phrases that i donā€™t understand. In this video here ( YouTube - 90. How to Place Your First Forex Trade ) Anyways he is talking about buying currency to enter a position witch i believe i understand that. You Sell USD to buy EUR, But when he continues on he says something about ā€œSelling to enter a positionā€ i do not understand, Could someone please explain the deference between the two, buying and selling to enter a position? Maybe i just need it explained in a different way?

You help will be greatly appreciated.

Thank you

I have also looked a the below statement from investopedia but it was just more confusing.

What Does Sell To Open Mean?
A phrase used by many brokerages on the street to represent the opening of a short position in option transactions.
Investopedia Says
Investopedia explains Sell To Open
An investor can sell to open either (or a combination of) puts or calls and thus will be holding the option(s) short. The distinguishing factor of a sell to open is that the option position must not be held long in the account during the transaction.

Look to the first currency of any cross. When you ā€˜sell to enter a positionā€™, your simply opening a sell position on the first currency with the expectation that it will fall in value against the second currency of the pair. Also known as ā€˜shortingā€™ or taking a ā€˜shortā€™ position. If your right you make money, wrong you lose money. ā€˜Buy to enter a positionā€™ is the exact same but in reverse. Your buying the first currency of the pair or going ā€˜longā€™ in the expectation the first currency will rise against the second.

In actual fact its a little more complicated than that but this will suffice as an explanation to your question. :slight_smile:

basically, buying gbp/usd means selling usd/gbp.

^^^ Thatā€™s how I always think of it, just (in your mind before anyone tries it!!!) flip the chart upside down and youā€™re buying USD/GBP, aka, shorting GBP/USD

As I saidā€¦ in answer to the posters question and keeping it a simple clear answer. When you sell your selling the first currency of a cross. When you buy your buying the first currency of a cross. But yes by implication your taking an opposite position on the second currency. :rolleyes:

So how am i selling the frist curreny witch is GBP, that i do not have any of since i would depost money to the broker that is in USD?

Think of it this way. When you buy or sell the first currency with the 2nd, you are placing an order with the brokerā€¦basically borrowing the currencies through the broker. You put up a margin amount out of your account as collateral.

The broker, through the platform, does all the conversions of the exchange rate between the pair and what that equates to in your currency, and gives or takes the results.

:slight_smile:

OK so if i think the GBP is going to go down i should sell it because other people are going to buy it becuase it is going down it will be cheap they think it will eventaully turn around and go up once i feel that GBP will go back up i would need to close my position. On the other hand If the GBP is low and i think the GBP is going to go up i should buy it then once i think it will go down i should close my position.

So is that the basics of it?

Buy low, sell high is the basics of it yes.

But to buy or sell just on what the GBP is doing fundamentally is forgetting what the half of the pair is doing. The GBP may be really strong against the Yen, but really weak against the USDā€¦not that it currently is, just saying.

Also price moves in waves so what you consider an opposite move compared to your position in the short term, may just be a natural pause & retreat before resuming itā€™s move in the longer term. Your strategy in part then depends on your view of this.

ok i think i get it now i was just wondering how could you sell to enter a position on the GBP/USD when you dont own any GBP, because you deposted USD, so i was wondering how could you sell something you dont have. But from the above post the broker takes care of that for you when you click sell to enter a position its because you think the base (GBP) is going to go down and close the position when you think it will rise. Does it sound like i have the idea?

Yes thats it. Forget what currency you have your account in. Its worth whatever its worth in the currency of your choiceā€¦ so for example Ā£1000 currently is $1600. This only becomes an issue when you have a big account. If you lived in the UK for example (as I do) but have your account in Dollars, you might want to hedge your postion re these two to keep your relative spending power in your home country by hedging your position relative to their respective moves up and down. But were off topic. Yes, you would be selling or buying the first in a pair in any cross in lot sizing of your choosing re account balance of your account (specific to your account cuurency of choice). :stuck_out_tongue:

OK got it

-thanks

Yes. You are buying or selling the ā€œexchange rateā€ between 2 currencies with your own currencyā€¦it doesnā€™t matter if your currency is in one of the pairs or not.

You buy a pair if you think their exchange rate is going up, and close it (sell) when you think itā€™s going down.
You sell a pair if you think their exchange rate is going down, and close it (buy) when you think itā€™s going up.

Itā€™s not like the stock market where there is one stock you buy it or sell itā€¦mostly buy from what I understand and then you sell it. In forex you can open both buy and sell orders because a sell order of the pair GBP(USD) is also a buy order of the USD. A sell order of the pair GBP(JPY) is also a buy order of the JPY.

Once you get your mind wrapped around thatā€¦and getting a demo will helpā€¦next step is to figure out what makes you think it will go up or down. :wink:

Yea that can be the hard part, From what i have been reading you have to pay attention to every thing from politics to natural disasters in a country and im sure many other things affect it as well.

Thanks again guys wish me luck.

You noticed that too huh? :wink: Its a fun gameā€¦ S&P500, FTSE, etc. They cherry pick the blue chip stocksā€¦ always the good ones. Bad ones some how fall off their list to be replaced with shining stars. ;):wink:

EDIT: Got to keep that chart pointing northā€¦ doesnā€™t matter the world is on its ass end? :stuck_out_tongue: