Question: How can I sell in FX market and make profit from falling prices? How does it work?
FX trading has 2 directions
It is often said that the basics of investment are “buy when the price is low and sell when the price is high”.
FX may not be that investment, but it is the same in terms of trading.
For example, “buy EUR/USD when it is cheap and sell it when it becomes high.” is so called EUR/USD buy/long.
However, there are shorts in FX.
If you are new to FX, you may not understand if you can get from this sale.
This has a lot to do with FX trading currencies.
See the list of online Forex brokers
Mechanism of Forex Currency Pairs
Let’s try EUR/USD.
For example, suppose the EUR is 1.00 USD. This EUR/USD = 1.00 USD means that 1 Euro and 1.00 USD have the same value.
The same is true for other currency pairs, and of course, this relationship can be reversed.
When “1 EUR = 1.00 USD” means “1.00 USD = 1 EUR”.
Everything, including currency pairs found in Forex companies, and those shown in newspapers and news, it consists of the diagram as follows.
A currency / B currency = the value
In the case of stocks, they are not paired with anything, such as “buying XX stocks of company A.”
So you just pay the money and buy the shares.
Buying EUR/USD and Selling EUR/USD
In FX that trades currencies, when you buy EUR/USD, you sell USD and buy EUR.
If you are selling USD and buying EUR, you will sell USD in your account and buy EUR.
In the first place, FX is a currency exchange in a broad sense, so it’s a good idea to think that you are exchanging currencies, rather than thinking of selling or buying.
You make profit from the change of prices
What if you buy EUR/USD?
This transaction involves selling the EUR and buying the USD.
In fact, the FX settlement method is, in principle, contract for difference.
Contract for difference is the settlement of the difference between selling and buying without delivering the actual item.
Roughly speaking, it means “I will give you only the profit and the loss.”
When you make a transaction, you need to give a margin.
So, you can trade by giving out only the margin money of the applicable leverage.
Since traders are actually trading, traders are dealing desk of FX company and bank of the cover.
Forex companies uses NDD (non-dealing-desk) that directly sends orders from customers to banks or DD (direct-dealing) method that orders from customers are sent to the financial institutions.
This is a part related to the profit model of the Forex company, so you don’t have to think hard.
In conclusion, the reason why you can sell USD which you do not have in your account is that “FX is a differential settlement method, so you only have to pay the profit or loss in the transaction.
