Sell it first, buy back below:going short when prices go low.
Selling a currency pair with the expectation that its value will fall.
When you go short on EUR/USD, you are selling euros and buying US dollars.
In plain words
Going short means selling first in the hope of buying back later at a lower price. In a currency pair, going short means selling the first currency and buying the second, so a short on EUR/USD is also a purchase of dollars with euros.
See it move
Reached: Buy back
Why it matters
A short trade is how a trader takes the view that a price may fall. It gains when the price falls and loses when it rises, and because a price has no upper limit, the possible loss on a short is not capped by the price itself.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A trader goes short one standard lot of EUR/USD at 1.1000 and later closes at 1.0960.
- 1Move1.1000 − 1.0960 = 0.0040, which is 40 pips
- 2One pip on one standard lot is worth 10 US dollars
- 3Result40 × 10 = 400 US dollars
The trade gains 400 US dollars before costs; had the price risen 40 pips instead, it would have lost 400 US dollars.
A common mistake
Selling a pair is sometimes pictured as betting against one currency with nothing on the other side. Every short on a pair is at the same time a long on its second currency.
Check yourself
Educational information, not investment advice or a recommendation to trade.