I understand types of orders, what shorting and longing a currency pair means, and the bid/ask spread. But I’m having trouble trying to wrap my head around something. I’m located in the States, so when I eventually open an account with a broker, my account would be USD. Would I even be able to short currency pairs such as EURUSD?
When shorting EURUSD that means I would sell EUR and buy USD, but I don’t have any euros so how would that happen? Similarly, if I long USDJPY, I don’t have any yen so how would I buy USD?
You actually are not buying or selling anything. You are effectively betting that a currency pair will go either up or down.
As a retail trader, your broker in all likelihood will not even place your order on the market. He will hold your funds and pay out if you are right or debit your account if you are wrong.
Can I suggest you spend some time at the school here before you consider trading?
Think of it like betting. Not a popular concept in the industry because of negative perceptions of betting, but easier to visualise. However, what you’re actually doing in your examples is betting the EUR/USD exchange rate will go down, or the USD/JPY exchange rate will go up. Neither you nor your US broker will ever get hold of any EUR or JPY currency.