Shorting Currencies Explained
BlogThe process of going short a currency is slightly different to that of shorting stocks or other assets, as we are not actually borrowing anything but instead trading derivative contracts. However, the principle is the same. Traders can go ‘ short’ a currency pair in order to speculate that the price of that pair will fall and then make a profit from this bet should their speculation be correct. Similarly, if a trader makes an incorrect bet and the market rises, they would make a loss on that particular trade.
Shorting Currencies Explained: How to Profit from Declines
Shorting Currencies Explained, traders need to sell the base currency in that pair and buy the quote currency. For example, to short the EUR/USD pair you would need to sell euros and buy USD. You then wait for the value of your shorted currency to depreciate against the dollar, and when it does you close your position by buying back your euros at a lower price than you sold them for – this difference is your profit.
This is a risky strategy that can lead to significant losses, so you should always take the time to conduct thorough research and analysis of both technical and fundamental market factors before opening a short position. Ultimately, the best way to learn about this type of trading is by following experienced traders and studying their trades, both successful and unsuccessful, to see what they do to maximise their profits.