Trading currency in the Forex market centers around the basic concepts of buying and selling. Let's take the idea of buying first. What if you bought something it could literally be almost anything If you sold it at that point, you would have made a profit See the chart below….
Had the pair moved down to 0. Also, it makes no difference which currency pair you are trading. If the price of the currency you are buying goes up from the time you bought it, you will have made a profit.
Here is another example using the AUD. In this instance we would sell the pair. Had the pair moved up instead and we closed out the position at 1. Remember, we are always buying or selling the currency on the left side of the pair. If we buy the currency on the left side, which is called the base currency, we are selling the one on the right side which is called the cross or counter currency.
The opposite would be true if we were selling the currency on the left side. Now let's take a look at how a trader can make a profit by selling a currency pair. This concept is a little trickier to understand than buying.
It is based on the idea of selling something that you borrowed as opposed to selling something that you own. In the case of currency trading, when taking a sell position you would borrow the currency in the pair that you were selling from your broker this all takes place seamlessly within the trading station when the trade is executed and if the price went down, you would then sell it back to the broker at the lower price.
The difference between the price at which you borrowed it the higher price and the price at which you sold it back to them the lower price would be your profit. The trader would be borrowing the USD from their broker when they execute the trade. At the point where they closed out the trade, their profits from the JPY increasing in value would be used to pay back the broker for the borrowed USD at the now lower price.
After paying back the broker, the remainder would be their profit on the trade. On the other hand, if the pair was shorted at In a nutshell, this how you can make a profit from selling something that you do not own. In wrapping up, if you buy a currency pair and it moves up, that trade would show a profit.
If you sell a currency pair and it moves down, that trade would show a profit. What is a Pip? Catch the DailyFX Team during office hours to ask any questions about the market or trading.
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