April 19, 2024

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Ways to sell short currencies in the forex market


In all financial markets, traders do sell stock when they feel like the value of what they are trading will fall. The same thing also applies to forex trade or forex exchange. With a stock, what you will be doing is selling shares that are borrowed and shares that you don’t own to return the shares sometimes in the future.  The forex market follows the same principle as any financial principle. What you will be doing is betting on a currency. You can bet that a currency will fall in value and if it happens to fall, you will make money. With forex trade, betting on currencies is a bit complicated because the currencies are normally paired. Every forex trade transaction involves a long position in one currency and a short position in the other currency

The pipvalue

Changes in prices are always measured in what we call pips. For every currency that is traded in forex apart from the Japanese Yen, a pipis always 0.0001 of the quote currency’s value. The yen is 0.01 of the value of the quote currency. When you are dealing with your broker, it is very important to understand these facts. For more on pip value, look for the best forex brokers in south africa

Placing a sell order

The first important thing to do to sell short currencies is to place a sell order. The difference between the forex market and shorting in the stock is that the forex market does not have to borrow the amount of currency that you would wish to short. Therefore, going short in forex is just the same as placing a sell order.

Parts of the pair

All currencies being traded in forex have a base currency as well as a quote currency. In the currency pair, the base currency always comes first. The quote currency then comes second. If you take the example of GBP/USD, the British pound becomes the base currency, and the USD dollar is the quote currency. When you understand this, trading forex becomes very simple. 

Reducing risk

If you have been thinking of shorting a currency, you must know that there are risks involved. The difference in forex trading has everything to do with going long and going short. If you decide to go long on a currency, the worse scenario will be watching the currency falling to zero. Although such a bet would be bad for your investment, your loss will only be limited. This is because the value of the currency has never gone beyond zero.

When you are shorting on a currency, it simply means that you are betting on when it will fall. Instead of falling, the value may keep on rising. The truth of the matter is that there are no limits on how far the value of a currency may rise. This also means that there is no limit on much you are going to lose when you are shorting a currency. One way to reduce your loss is by setting up a limit. Forex brokers in South Africa can also help you reduce all the possible risks.