The foreign exchange keeps gaining a lot of attention worldwide as people are now more open to the number of profit making probabilities therein. Trading forex is however no mean feat; it takes some efforts and the need to pay heed to certain vital details – and thanks to the development of forex software, it is now relatively easy for investors to keep up with trends as they hope to limit the loss and make good gains in the forex market.
A trend that is now commonly used by forex traders is the short selling of a currency pair. The short selling urge gets stimulated as the reality of the possible depreciation (of the currency) dawns on the trader. This is specifically done in order to kind of leverage on the fall in price to make some profits – a smart move you may say but the trend does come with some risks though. A major risk is the high tendency of suffering a loss when the price suddenly surges.
How short selling works in the Forex Market
To sell short in the forex market, you must first set your currency pair in order; showing up the base currency and the quote currency. When you decide to sell short, you will be going short on the base currency and then go long on the quote currency. So, in essence, while you speculate that the base currency will fall in the future; the quote currency will get to rise. Should that speculation turn out positive, the gain is yours and if not, there is a loss.
To ensure some sort of damage control [in the event of things not going as you speculated] however, it is always advisable to set a stop-loss order right on time. With this, you will be able to prevent continual – and/or total – loss.