I dont understand short selling exactly, can someone tell me how? I know how selling short stocks works. Basically i borrow shares from my broker and then sell them. When the price drops, i buy shares back and give the shares back to my broker which i borrowed. I am like a middleman.
But if i sell for example EUR/USD, basically i am selling eur and buying usd. Now i own dollars and wait when price drops. When i am ready i sell the dollars and buy euros back. Basically i am buying with high price and selling with lower price. How the profit comes?
My theory is, I look EUR/USD as it is one financial instrument. So i borrow the instrument and sell like shares and later buy back. Can i borrow it like shares? How the selling short currency pair mechanics works? Maybe someone can give examples with explanations
I am trying to understand. Basically, i don’t need to think every time about selling euros and buying usd. I understand, when i sell eur/usd i want that euro loses value and later i buy back when i close the transaction hopefully with cheaper prices. So for example when in US good news come out euro will lose value and the price drops and i make profit. The problem now is i don’t understand exactly selling euros and buying usd thing.
When you long EUR/USD, you are using your money and the leverage your broker gives you to covert your base currency into 50% Euros and 50% US Dollars (of your lot size), which = breakeven. The concept behind longing Euros is the same as the concept of longing a stock, while the concept of shorting US Dollars is the same as that of shorting a stock. When the value of these currencies change and you want to convert it back to your base currency, that will be your profit or loss. Shorting EUR/USD is the exact opposite. You short the Euro and long the US Dollar. I hope I’m correct, and that made sense.
I think you tackle this way too complicated. Here is a very simple explanation (I hope). When you short EURUSD you want the value to go down, don’t even think I am buying this and selling this and than convert this into that. When you long EURUSD you want it to go up, when you short it you want it to go down and your forex broker/trading platform does all the rest.
So the selling short currency pair mechanics works so, i sell euros and buy dollars. Now when dollar gains value then euro loses and price drops. I buy euros back and hopefully make profit I think i understand.
I don’t understand 50% Euros and 50% dollars = breakeven thing.
Rambo nailed it. The mechanics aren’t really important. Sell(short) and make money when the pair heads southwards. Long(buy) make the money when the pair heads north.
That’s all you need to know far as your. The rest is explained in the babypips school.
It might help you better understand how shorting a currency pair works, if I walk you through two trade examples using the EUR/USD currency pair. The first example is a long position, and the second example is a short position.
[B]Example 1: Long Position[/B]
I bought 100k EUR/USD at 1.3345
[I]That means I bought 100,000 Euros, and I paid 133,450 US Dollars for them.[/I]
Later I closed my 100k EUR/USD long position at 1.3115
[I]That means I sold 100,000 Euros, and I received 131,150 US Dollars for them.[/I]
Since I originally paid $133,450 and later received $131,150 my loss on this trade was $2,300.
[B]Example 2: Short Position[/B]
I sold 100k EUR/USD at 1.3345
[I]That means I sold 100,000 Euros, and I received 133,450 US Dollars for them.[/I]
Later I closed my 100k EUR/USD short position at 1.3115
[I]That means I bought 100,000 Euros, and I paid 131,150 US Dollars for them.[/I]
Since I originally received $133,450 and later paid $131,150 my profit on this trade was $2,300.
Let me know if you have further questions about this.
Perfect explanation! As i understand the profit or loss is always in quote currency. By the way i plan to open my real money account in fxcm for practicing.
Great explanation. I have been doing forex for about 6 months now, but honestly until now I have never really understood the concept behind those short selling.
