Hello,
So can someone briefly explain how one makes money when shorting a currency? I’m not sure I understand. If I sell a currency, and its price goes down, how do I make money? For example, If I sell a currency $10 a unit and sell 10 units, I make $100. If I buy it back at a lower price, say, $5 a unit for those same 10 units, I spend $50 to buy back the 10 unit.
Why not just keep the $100? How does one benefit for buying it back at a lower price? I know im missing something, but I just dont know what exactly.
It is a bit abstract as there is no physical exchange but it works like this:
Going long: you buy USD 1,100 for EUR 1,000 and later you sell the USD 1,100 for EUR 1,050. 50 bucks profit.
Going short: you SELL USD 1,100 for EUR 1,050 and later you BUY it for EUR 1,000. 50 bucks profit.
Forget about actually buying, see the concept. It is a virtual exchange, so it doesn’ t metter if you actually have dollars, as long as you have the EUR.
Yes, that is true. You can at a moment buy more USD then yesterday for the same money. But when you are not placing a trade (locking in the price) it is just information that you could have made a profit IF you placed a trade. 99,9% of the Europeans could perhaps buy more USD for the same money today then yesterday, but as they are not exchangeing/trade they are not capitalizing that price difference, so it doesn’t affect them.
Oh ok, i see. Thanks for that explanation. That does help. Hopefully, there is a section in the courses that goes more in depth about this. Thanks again, though. I really appreciate it.