What does ‘short‘ in forex mean?
In forex trading, “short” refers to the selling of a currency pair with the expectation that its value will decrease. When a trader takes a short position, they borrow the currency at a certain price, sell it at the current market price, and then aim to buy it back at a lower price to repay the loan.
If the currency pair’s value does indeed decrease, the trader profits from the price difference. This strategy allows traders to capitalize on downward market movements and is a fundamental aspect of forex trading.
Example of ‘short‘
Let’s say a trader believes that the value of the Euro is going to decrease relative to the US Dollar. They can open a short position by selling Euros (EUR/USD) at the current exchange rate of 1.1500.
If the Euro does indeed fall in value as anticipated, the trader can then buy it back at a lower price, thereby profiting from the difference.