Hey everyone,
I just can’t seem to wrap my head around shorting in forex market.
To start off, if i want to buy 1 lot, there has to be 1 lot worth of sell orders to purchase from, correct?
If that’s the case, if i want to short 1 lot, there has to be 1 lot of buy orders to purchase from? I thought shorting means we are basically “borrowing” so why does there need to be any buy orders when we can technically borrow the buy orders?
Hello, yes correct but there is no borrowing involved at the point of understanding shoring or going long. But if you use leverage then you broker is lending you units of currency based on deposit you place in form of your margin. Check the school of pipsology.
Just think of forex trading as betting and it becomes a lot clearer.
For example, when we go long or buy EUR/USD, we are not buying Euros with our Dollars, we are betting with our broker that the exchange rate between the two will rise. When we so short EUR/USD, we are betting that the exchange rate will fall. No currency changes hands.
Thank you for the wasy explanation. So basically,
For EUR/USD = 1.2000
Means that I am betting the EUR will rise by purchasing 1 pound/selling $1.2000 right?
And for short, i am selling 1 pound/buying $1.2000?
I think i just need a clear up as i studied stocks before forex so confused about the “exchange” of the pair