Help I'm new!! Buying OK, Selling???

[garethw2008]

Hi Guys, I've been reading up on Forex, and understand how buying e.g. Euros with dollars early in the day, watching e.g. the Euro going up, and then 'cashing up' at the end of the day will make an instant profit, by buying more dollars back with the euros (I am aware that I'm not actally buying Euros, but merely speculating on them). What I don't get is this; If I sell euros (EUR/USD), and they go down, how am I making a profit? I realise/(think?) that when I 'cash out/close transaction' at the end of the day I have more Euros than I started with, but as they have gone down in value, how am I making a profit? I have read through e.g. Etoro training, but dpon't find the example helpful , maybe I'm missing something fundamental? Any help given will be much appreciated,
Cheers
garethW

 

[minime69]

Hi Guys, I've been reading up on Forex, and understand how buying e.g. Euros with dollars early in the day, watching e.g. the Euro going up, and then 'cashing up' at the end of the day will make an instant profit, by buying more dollars back with the euros (I am aware that I'm not actally buying Euros, but merely speculating on them). What I don't get is this; If I sell euros (EUR/USD), and they go down, how am I making a profit? I realise/(think?) that when I 'cash out/close transaction' at the end of the day I have more Euros than I started with, but as they have gone down in value, how am I making a profit? I have read through e.g. Etoro training, but dpon't find the example helpful , maybe I'm missing something fundamental? Any help given will be much appreciated,
Cheers
garethW

you are selling € but buying something else against it, so when you buy back the €(same amount as sold) you get more of the second currency.

 

[Rhody Trader]

What I don't get is this; If I sell euros (EUR/USD), and they go down, how am I making a profit? I realise/(think?) that when I 'cash out/close transaction' at the end of the day I have more Euros than I started with, but as they have gone down in value, how am I making a profit? I have read through e.g. Etoro training, but dpon't find the example helpful , maybe I'm missing something fundamental?

When you are short EUR/USD you have effectively borrowed EUR to convert into USD. When you reverse the trade (close out) with EUR/USD lower your USD buys back more EUR than you borrowed. Thus, you have extra USD (and by extention extra EUR), which is your profit.

 

[garethw2008]

Cheers, better but still cloudy

you are selling € but buying something else against it, so when you buy back the €(same amount as sold) you get more of the second currency.

Cheers for that, but I think I'm confused about the 'cashing up process'. Example: if I used 100USD to buy e.g. 90 Euros in the morning, and in the afternoon there was a dramatic change and the 90 euros went down to being worth only 85 USD. When I 'cash up' I get 90 euros back for only e.g. 85 USD, which means I've got the same amount(90) of Euros that I paid 100 USD for plus 15 dollars?. Does that mean I get back 115 USD (100 + 15 profit)? And how does it work? Apologies for stupidity - back to school again!!
Thanks
Garethw

 

[x4x]

It is of course a currency pair, but think of it in terms of a single currency. In EUR/USD the Euro is the BASE currency - it is the BASE currency which you are speculating on. If you think the Euro is going down you would SELL and you would profit if it did indeed go down. If you think the Euro is going to go up, BUY it, and you will profit if it does go up.

Then think of the value in terms of points, if it moves in your expected direction by 20 points you will profit 20 X stake. It sounds like you are very new and I would advise doing loads more research before committing your hard earned money to the market.

 

[debrox]

The easiest way to grasp it is to ignore the fact that there are two currencies. Let us say you are trading:

potato sacks/usd

So you can buy potatoes with usd or sell them for usd. The going rate here will start at $10 for a potato sack, meaning the currency rate is $10.0.

making a profit when it goes up:
If you think potatoes will be worth more tomorrow ($11), and you have $10, the process is straightforward. Buy the potatoes today then sell what you bought tomorrow. E.g. buy 1 sack for $10, it goes up to $11, sell it for $11, you make $1 profit.

Making a profit when it goes down:
This is called short selling. You think the potato will be worth $9 tomorrow, it is $10 today, and you have $10 in hand. Through your broker, you borrow a sack of potatoes and sell it immediately for $10. In hand, you have $20 that you cannot touch -- it is sort of used by the broker just in case potatoes start to go up instead! E.g. a potato can go up to $20 a sack and the broker still has enough to buy back the potatoes you sold without you developing any debt (but you lose everything). So anyway, the potato goes down to $9. You think it's time to deliver a sack of potatoes to your broker, thereby closing the trade. To do this, you just reach into the pool of potatoes being sold and buy one for $9, using your $20. You now are left with $11, a $1 profit. Then you say "Here, broker. Take this sack of potatoes I owe you."

It is all the same with currency conceptually, except you are buying another currency with a currency instead of a good with currency. Hence eur/usd == potato/usd. You buy a single eur for the going rate (e.g. 1.28).

Now, I know there is all this mumbo jumbo about how fx is speculation and sometimes trades don't actually happen bla bla, it doesn't matter. This is how to think about it at first at least.

 

[jonstevens85]

It can be extremely confusing when beginning trading, I found one book particularly helpful when I started; "Getting started in currency trading" by Michael Archer.

Hope this helps