I am obviously new and confused. I do understand the concepts
of short and long position when related to base and quote prices
for currency.
Would you please explain this.
To start how can I sell short for lets say ( usd/euros) if I have
not purchased euros before I attempt to sell short. I cant sell what’
I don’t own. I can see you have the currency(borrowed) sell at the
prevailing price then the price decreases you buy give back the money
and keep the difference but you can’t sell what you don’t own.
Also, being long in a position, what is this? Does it mean I have purchased
a lot of this currency and have it stacked up on hand? Explain please.
Also, please explain the flip side being short.
thanks
*When you initiate a [B]long [/B]position on the EUR/USD (let’s say 1 standard 100K lot), this is what happens:
-[B]You buy 100K Euros for 130K USD[/B] (if EUR/USD trades at 1.3000).
-When you close your position (for example after EUR/USD rose to 1.4000), [B]you sell back the 100K Euros for 140K USD a[/B][B]nd you make a 10K USD[/B] [B]profit[/B] (=1000 pips) because you bought them at only 130K USD.
*When you initiate a [B]short [/B]position on the EUR/USD (let’s say 1 standard 100K lot), this is what happens:
-You [B]lend 100K Euro’s from your broker.[/B]
-You [B]sell these 100K Euro’s for let’s say 130K USD[/B] (if EUR/USD trades at 1.3000).
-When you close your position (for example after EUR/USD fell to 1.2000), you [B]buy back the 100K Euro’s you bought at 130K USD for only 120K USD[/B].
-[B]The 100K Euro’s you just bought back are returned to your broker and you make a 10K USD profit[/B] (=1000 pips) because you sold 100K Euro’s for 130K USD and then bought them back for only 120K USD.
FX-Tiger has stated it pretty clearly. I would just add that when you go long EUR/USD you are in fact borrowing the 130k USD to convert in to EUR, just as you borrow the 100k EUR in the short example. In all forex trade you are always borrowing the short currency and converting it in to the one you are going long in.
I am very fresh to forex still struggling to comprehend the baby pips trading manual. I am still not clear on the Short position here’s how i interpret the information from my view point. Now i just understand in Forex i can sell (short) for position that i don’t own initially unlike in stocks a seller is required to own before he can sell. Lets relate a situation i am new trader in forex i open a new trading account and on my 1st trading i want to Short Euro/USD in your explanation you suggest the Trader LEND 100K Euro to the broker again can the trader in SHORT position loan a currency that he doesn’t yet own to his broker? the next line u state the Trader sells the 100K euro for 130K USD @ (EUR/USD =1.300)
now I am confuse with this 3 statement to me its contradicting the trader at the beginning the trader LENDS a position he doesn’t yet own and then later SELLS a position he doesn’t yet own and finally closes the position at lower 1.2000 to make profit. I cannot logically relate the LEND, SELL and CLOSE.
I finally got it ( I skim the reply from rhody trader) In Short the trader BORROWS the EUR/USD 100K lots from the broken then later sells in the market let’s say at the rate of EUR/USD of 1.300 and then waits for the price to dip and buys when the price is lower let’s say at 1.200 and pays back the broker for the 100K lots borrowed earlier and pockets the difference between 1.300 and 1.200 transaction. However while waiting for the closing if the EUR/USD goes up instead of going down can the trader hold the position indefinitely to avoid losing money?