Short Selling

Sometimes you want to enter a trade, but you don't have the right currencies. For example, your accound is funded with US dollars, and you think the dollar is going to rise over the Euro, so you want to "sell" the EUR/USD pair, meaning selling Euros and buying dollars. However, you don't have Euros to sell.

To get over this problem, your forex broker allows you to do "short selling". This means you sell something you don't have, and you agree to buy it later. This enables you to profit when something is going down. You sell it now, at a high price, and buy it when the price is lower. "Buy low, sell high". You do exactly that, but in reverse.

This order is common also on the stock market, so people can profit from a down market. However, it is not always available, and the risks are much greater (in theory, there is an unlimited loss). Also, if the price suddenly goes up, you may not be able to buy back the stock, and you'll be left with a huge loss.

Most good forex systems "know" that short selling is possible. This way you can benefit both ways - when a currency goes up, and when it goes back down.

Hope you learned something new today.
Nadav

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