Buying and Selling (Going Long and Short)
Yes, you can profit when prices fall. Here is how.
Researched and written by Laurent Going Long: Buying a Pair
When you buy EUR/USD (go long), you are:
- Buying euros
- Selling US dollars
- Betting that the euro will strengthen against the dollar
If EUR/USD goes from 1.0850 to 1.0950, that's a 100-pip move in your favor. You bought euros cheap and they became more expensive. You can now sell them back for a profit.
Going Short: Selling a Pair
When you sell EUR/USD (go short), you are:
- Selling euros
- Buying US dollars
- Betting that the euro will weaken against the dollar
This confuses many beginners. "How can I sell something I don't own?" In forex, you can sell a currency pair you don't hold. Your broker facilitates this. Think of it as borrowing euros, selling them for dollars, and then buying them back later at a lower price to repay the loan.
If EUR/USD drops from 1.0850 to 1.0750, that's a 100-pip move in your favor. You sold euros at a high price and bought them back at a lower price.
Two-Way Market: Why This Matters
In the stock market, most retail investors only go long. They buy shares hoping the price goes up. When the market crashes, they lose money. In forex, you can profit equally from both directions:
- Think EUR will rise? Buy EUR/USD.
- Think EUR will fall? Sell EUR/USD.
- Think JPY will strengthen? Sell USD/JPY (because JPY is the quote currency, you're buying yen).
This flexibility is one of the things that attracts traders to forex. There is no "bear market" in the same sense as stocks. If one currency is falling, another is rising. You just need to be on the right side.
The Dual Nature of Every Trade
This is important to internalize: every forex trade is simultaneously a buy and a sell.
- Buy EUR/USD = buy EUR, sell USD
- Sell GBP/JPY = sell GBP, buy JPY
- Buy AUD/CAD = buy AUD, sell CAD
When you "buy" a pair, you're betting the base currency will outperform the quote. When you "sell" a pair, you're betting the quote currency will outperform the base. There's always a winner and a loser in every pair.
This also means when someone says "I'm bullish on the dollar," you need to ask: "Against which currency?" The dollar can be rising against the yen while falling against the euro at the same time.
Key Takeaways
- • Going long (buying) means you expect the base currency to strengthen.
- • Going short (selling) means you expect the base currency to weaken.
- • You can profit from both rising and falling markets.
- • Every forex trade is simultaneously a buy and a sell (you buy one currency, you sell the other).