This is Shiro!

So how exactly does FX short selling work?

I understand long in FX, but I don’t get short…

In this article,

we will explain the short in FX trading

in an easy-to-understand way.

FX Short Selling

First, in the case of FX short selling“you sell, and if it goes down you buy back to make a profit”is a somewhat tricky way of thinking.

Based on the image explanations, I’ll break it down clearly.

【Image Explanation】 Simple Explanation of FX Short Selling

We will explain with images.

First, let's grasp the structure.

This is an NG (Not Good) example, but I’ll explain with “borrowing a game from a friend and selling it, then buying it back.”

（Please click the image to enlarge）

• Sell a game software borrowed from a friend for 10,000 yen
• The game software’s price falls to 8,000 yen
• Buy it back for 8,000 yen
• Profit of 2,000 yen

This is the simple structure of a short.

If the value of the game software rises instead, when you buy back it becomes more expensive, resulting in a loss.

Basically, the price at which a game is sold at a game shop is not necessarily sold at the same price in-store, but… I’d appreciate if you could overlook that detail.

In stock terms, the structure would be as follows.

Next, I’ll illustrate with USDJPY short as an example.

【Image Explanation】 FX USDJPY Short

A USDJPY short isselling dollars and buying yena trade that entails this.

The basic structure (please click the image to enlarge)

After entering, if the market goes down, there is a profit; if it goes up, there is a loss.

After entry

Holding a USDJPY short position means selling dollars and buying yen, in other wordsto part with dollars and acquire yenthis is what it means.

So, what does it mean to settle this short position?

Short settlement

Settlement of a short position means buying back the dollars and repaying the yen (selling)

In the market, settling a dollar-yen short position is a “buy,” so if there are many short settlements, the market tends to rise.

Furthermore, if this settlement occurs near areas where many people are buying on dips, the market tends to rise due to a synergistic effect.

In summary, the flow is as follows.

If you still find it a bit hard to understand, please keep reading.

If you have one dollar and the current rate is 150 yen per dollar

• When exchanging, 1 dollar becomes 150 yen
• Then, as expected, the rate falls to 140 yen
• You can buy 1 dollar at 140 yen, leaving 10 yen as profit

In reality, FX allows leverage, so trade volume can be changed in lots.

This is about exchanging actual dollars and yen, butIn FX,you can start with a sell even if you don’t hold dollars.

In FX
“Only the difference between selling and buying at these prices is exchanged” (the difference settlement)

is how it works.

Therefore, FX has the features that:

• You can start selling even without dollars
• In return, you must settle with the opposite order (buy)

This is a characteristic of FX.

Also, FX allows leverage, so you can increase the trading volume (lots).