Why sell/go short?

Beginner Questions
1

I am working my way through the babypips course. I do understand the fundamantals and the basic principle of buy low, sell high.

Can someone please explain why, in the course, you say sell, for example:
In double top pattern: SELL…
I understand why one should sell but

  1. Does this presume that you have bought previously (hopefully at a lower price) and this is a good time to sell.
    OR
  2. Is it saying SELL the base currency, it’s a good time to buy the counter currency.

I think it’s the first answer but I just need confirmation that they are assuming that by selling you have bought the pair at some point previously.

Please can a wize newbie or learned pro help?
Thank you!!:confused:

2

your selling something you don’t already own to buy it back at a better price (read lower price) for a profit.

3

In the spot FX markets, you are trading currency pairs. For example when you SELL, USD/JPY you are simultaneously selling the US Dollar and buying Japanese Yen, and vice versa. So, you can sell a market without having a previous long position open first.

I hope this helps.

4

what he said ^^^^ :wink:

5

Hi, I have literally just signed up as a member of baby pips ! And I`m a Forex novice… I have been dipping in and out of gbp /cad all week, always going short when the price goes up to around 1.8900. . So far so good… Have you any views on where this pair is heading ??

Thanks

JB

6

i’d say you need a bit more of a strategy than that. But you’ll find what you need in the babypips school and on this forum so you’re in the right spot! Cheers!

7

Sounds good Thanks… I was recommended to join this website. I am now on a mission to study and learn! I originally entered into that gbp/cad trade short from the advice of an experienced trader. After banking a nice profit I then just dipped in and out with shorts everytime it went back up, on the basis that the advice I was getting was that the trade was still live as a short.
I guess thats probably still not the correct stategy and I accept your point.
However I am now back in the trade short and was hoping to get someone elses view on where the pair was heading.

Thanks

8

Thanks for this response, it does help. I do understand that you are buying/selling pairs so if you buy the one you are, in effect, selling the other. To quote your reply above, how can “you sell a market without having a previous long position open first”? ---- for example----->

If you’re looking at the GBP/USB pair and have USD in your account, how can you sell GBP if you don’t have any open long positions (ie, bought them before). Or is “selling GBPs” really just another way of saying “buy USDs”, in this instance.

Thanks for the help! :confused:

9

Hi,
It doesn’t matter what currency your trading account was funded with.

Yes in any short trade, when you sell the first currency of the pair, you are buying the currency of the second pair with it…it’s an exchange of foreign currencies :smiley:

In your case, it’s like you are “borrowing” GBP (from your margin deposit) to buy USD.

When you close a short trade in profit, you sell USD (at a higher price than you bought it for), to buy back the borrowed GPB at a lower price than you sold it for…or in other words, you pay back less than you borrowed.

Hope that helps :slight_smile: