Hi, I’m new. Just finished pip school and now going through it a third time.
Great site. I really want to thank you all for putting it up. I’ve been studying trading books for a couple of years and almost gave up on the idea of trading as nothing I read gave me enough confidence that I knew enough to even start a demo account. That and I didn’t know about forex and the fact that you can start with smaller account.
I’ve always been the type that wanted to work for myself and be self reliant. In fact I’ve been working for myself for the last eight years or so. But, I’m always looking for something that has a much larger potential should I become skilled in it. That is, something that isn’t limited so much by outside forces and things out of my control.
Searched all over the internet and the same thing, people trying to scam you for 3-50k for a, “guaranteed system.”
Finally someone in another forum suggested this site for learning. I read about forex before, but never in a grade by grade progressive method like in baby pips.
So anyways my question on making pip/money off of short selling, which I always struggled to wrap my head around. (Ahhhh how can you make money when something goes down!!!)
Here is short selling as I understand it: You sell a pair in the belief that it will go down. Then when it goes down you buy it back and your proft is the difference in between the two. Correct so far? If so that much I get.
Whats been rolling around in my head for the past couple of days is this. Say you have an account that is currently flat. You think USD is going to go down. How do you short from a flat account? Are you just buying a pair that doesn’t have USD as it’s base and then buying the USD back when it goes down. For instance. Buy, GBP/USD …USD goes down…buy USD/GBP
And another question, if it’s not to much for one post… Is it usual for forex traders to trade both the up and down trends, that is going long and shorting and taking profits in both direction?
Yes, I already read that that a few times. Still can’t wrap my head around it.
To restate my question and my confusion, here is the scenario I’m playing out in my head.
…a trader has an account that is flat (no trades in the market) They wish to go short on USD because they feel it is going down. So, the trader then buys a pair that USD is NOT the base currency? Which equals selling the USD in their acccount? Then when and if it goes down as expected they buy a currency pair that has USD as the base. So, the trader has in effect sold USD and bought it back at a lower price later, so the difference is their pip profit?
I guess I’m looking for clarfication on how short selling, in order to make a profit, is done from flat account.
Hi,
It doesn’t matter which currency your account is in. When you sell a pair (any pair), you are sorta like [B]borrowing[/B] the currency of the first, to buy the 2nd, using your deposit account (margin) as collateral. Then hopefully you close at a profit where you repay the borrowed currency and the gain is put back into your deposit account (or deducted if you have a loss).
This whole market is about exchanging one currency for another. You keep saying you want to short USD, but that also means that you want to buy another currency (which one?), because there is always an exchange. The same goes for buying too, you have to sell another currency to buy the one you’re guessing will go up.
Keep in mind this is all done with contracts. The contracts are obligations to exchange currencies at certain prices, and price movements create debts or credits to your account as the price moves away from the price you are obligated to exchange it at.
Price is for example 1.00 on whichever pair you select. You think price will fall/decrease so you click your sell button. You notice a portion of your margin is used. Wait for price to go down. Price reaches 0.90 so you close your trade. You made 10 pips worth of profit.
Sometimes there is confusion that you needed to have bought the pair sometime prior before you can sell it. Not so. When you short currencies, you are buying the 2nd currency of the pair.
Shorting GBPJPY means you are buying JPY with borrowed GBP
Longing GBPJPY means you are buying GBP with borrowed JPY.
That’s what I’m trying to understand. I understand going long. You buy/echange. Wait for it to go up and then sell.
As far as shorting from a flat account what I’m asking is: If I thought the USD was going down I would then buy say GBP/USD, wait for USD/GBP to go down and then sell? And this would equal selling USD and Then buying it back at a lower price?
I realize this sounds stupid, (only stupid question is the one you don’t ask right?) but I havn’t even done a demo account, so I havn’t seen the actual nuts and bolts mechanics in action.
I believe that is the answer I was looking for thank you. If you are anyone else has anything else to add to further clarify that would be great. My mind doesn’t seem to want to accept the idea of short selling for profit because of it’s contradictory nature.
Well I could restate my original explanation, but since you pointed it out, not even having seen the market in real time will be a huge obstacle in understanding a lot of things (ESPECIALLY leverage concepts).
To be blunt, you are going to need more confidence in yourself if you want to trade successfully. The market is all about emotions and the charts can lull you into a state of fear or greed, which usually erodes any rational decisions you try to make. Demo accounts are risk free, just what are you waiting for? You can click all the buttons and watch numbers fly all you want and you’ll be learning a lot while you do it! So please do yourself a favour and look into some brokers with free (preferably unlimited) demo accounts!
Confidence and emotions aren’t problems at all. I havn’t run a demo account yet because I just want to learn a little more first so I know what it is I’m looking at. Inevitably I’m sure looking at a demo account will just raise a bunch of little questions. I just wanted to get a few small ones (that may seem stupid to the more experienced) out of the way first. I’m taking everything in the babypip school very seriously.
Last night I started a demo account with oanda to play around. I now understand the basics of short selling. I just wanted to add to this thread for any noobs like me who didn’t understand the same thing.
This was my misunderstanding, how I thought shorting worked:
First you buy the pair, then sell it, then buy it back, then close the trade.
I also thought buying and selling worked like that: Buy,sell, then close.
Instead of buy, then closing when you hit your mark.
(I know technically you are buying and selling at the same time when you purchase a pair, that it what threw me I guess)
perhaps i can clear up this long/short thingie if it hasnt already been solved.
what one does when shorting would be considered illegal in normal society and rapidly lead to arrest, but capitalism and the markets have slightly different rules !
shorting consists of BORROWING something you dont own and then selling it at the highest price you can get for it ---- having done that, let us say, your account has just gone UP by $1000
your intent is to wait (because youre all knowing and the LRC is pointing down) until that “thing” you borrowed and then sold reaches an extremely low price, where you can then buy it back (closing the trade) at $500, POCKETING $500 and then give “the thing” back to the rightful owner, with you pocketing the difference between what you sold and what you bought at which in this case is $500 !
in real society, they would refer to it as “unauthorized use” and possible “theft with intent to sell” and throw you in prison, but capitalism thinks its just the cats meow !
