It means betting against the market when you go short or short-sell. When you sell an asset in this situation, you assume the price will fall, and the more it falls, the more profit you make.
A short position is the opposite of a long position, in which you anticipate a rising market and would open a buy position. When the market is bearish, traders open short positions, and when the market is bullish, they open long positions.
What is Forex shorting?
It is an inherent part of Forex trading to short currencies. Forex trading involves going long on one currency while simultaneously selling another. In other words, when you trade Forex pairs, you are betting on the value of one currency rising relative to the other.
The short position on a currency pair means you expect the base currency to decline against the quote currency. Whenever you buy a currency pair, you must sell the quote currency to purchase the base currency, and the cost of the pair is how much you have to sell.
How to short a currency?
You can short a currency by following these five easy steps:
Identify your preferred Forex pair
It is important to research the different Forex pairs available to you to determine which pairs tend to be more volatile or have the greatest liquidity.
Trading pairs with more volatility or higher liquidity can be crucial for those with a greater appetite for risk; or those seeking quick opportunities for profit, such as scalpers.
Carry out analysis
To open a trade, you should conduct technical and fundamental analysis after choosing the pair. In other words, the analysis provides insight into whether your trade may be profitable.
It is important to use technical indicators such as Bollinger bands and Fibonacci retracements to determine whether the price of a Forex pair is currently oversold or undersold, as well as the market’s volatility. By doing this, they can identify whether a Forex pair is reversing in a bearish direction – which is a good time for a short position to be opened.
Choose a Forex trading strategy.
While trading the markets, you can utilize various strategies to your advantage. For instance, the EUR/USD pair could be shorted using a scalping strategy, which relies heavily on fast and constant price movements.
Create a Forex account
You’ll need a leveraged trading account to trade Forex via spread betting or CFDs. Opening a Forex account only takes a few minutes, and you’re not obligated to add funds until you’re ready to trade.
Open, monitor, and close your first position.
You are ready to trade once you have selected your pair, conducted your analysis, and selected a strategy. Whenever you want to go short on a particular market, select ‘sell’ from the deal ticket for that market. Otherwise, you could click the ‘buy’ button to go long.
Additionally, this window allows you to specify whether you want to add any stops or limits to your trades, which may help limit losses and maximize profits. Whenever you wish to close a position, you simply make the opposite trade to the one you made to open it – a buyer in a short position and a seller in a long position.
Bottom line
When you go short, you are betting against the market. Financial derivatives such as CFDs and spread bets allow you to go short. Financial derivatives allow you to profit from a Forex pair’s movements without owning any currency. In theory, betting against the market involves unique risks since you could lose any amount if an asset’s value rises. Because of this, you should use stops and limits to reduce your risk exposure.
