WHAT IS SHORT IN FOREX MARKET
SHORT IN FOREX : A CLOSE LOOK
As we can see that being a trader in any market, a person should be aware of going long as well as going short.
Therefore,
In this article, we are going to learn about what does going short means in the market of foreign exchange.
Basically,
A trader sell short, when he believes the value of any currency pair that he is trading will fall. This is basically what we call going short.
UNDERSTANDING:GOING SHORT IN FOREX MARKET
In each and every financial market, including Forex, you sell short When You Believe the value of the currency pair you are trading will fall.
Apparently,
Going short in the forex market follows the same general principle ----- you are betting that a currency will fall in the value and if it does, you make money----- it's a bit more complicated.
HOW TO GO SHORT IN FOREX MARKET :
Going short, in other words the short position, is essentially the opposite of going long. When traders enter short position they expect the price of the underlying currency to depreciate (go down) .
Short a currency means to sell the underlying currency in the hope that its price will go down in future allowing the traders to buy the same currency back at a later date but at a lower price.
Hence,
The difference between the higher selling price and the lower selling price is known as profit.
Therefore,
Traders look for sell- signals to enter short positions. A common sell signal is when the price of the underlying currency reaches for level of resistance.
Basically,
Level of resistance is a price level that the underlying has struggled to break above.
FOR EXAMPLE :
Let's say GBP / USD rate is 1.3452 , which means one pound is valued at $ 1.3452 . If you expect the value of the pound to fall against the dollar you will sell the currency pair at the rate.
If you bought the pair after the rate went to 1.3441, you would have made 11 pips.
{ PIPS : Percentage in point, a smallest change in the quoted currency pair.}
Hence,
The Math to find the value of a pip in the quote currency for standard lot of a base currency is 0.0001 (1 pip) / 1.3452 (exchange rate of pair) × 100000 ( lot size) = $ 7.43 . That means for you 11 pip gain, you would have made 11× $ 7.43 = $ 81.73 , excluding the commission.
SPECIAL CONSIDERATION :
Broker may charge a set Commission perhaps--- $ 5 , for each currency trade of a standard lot they carry out or they may keep the difference between the bid price and the asking price for each trade.
WINDING UP :
If you are thinking about shorting a currency pair, you must keep risk in mind --- in particulars the difference in risk between " going long" and " going short" .
Therefore,
If you are shorting a currency on the other hand, you are betting that it will fall when, in fact the value could rise and keep rising.
Theoretically,
There is no limit to how for the value could rise and consequently there is no limit to how much money you could lose.
