There’s Profit Potential from Rising and Falling Prices

The forex market has no restrictions on directional trading. This means that if you think a currency pair is going to increase in value, you can buy it (or go long), and if you think it is going to decrease in value, you can sell it (or go short).

Because currencies trade in pairs, you’re always actually buying one currency and selling the other no matter whether you’re going long or short. Let’s say you’re trading the British pound/U.S. dollar (GBP/USD) currency pair. You would buy that pair—that is, buy the pound and sell the dollar—if you expected the value of the first currency, known as the base currency, to increase in value in comparison with the second currency, known as the quote currency. You would sell that pair—sell the pound and buy the dollar—if you expected the value of the pound to decrease in value in comparison with the dollar.

Unlike in the stock market, where you first borrow shares to sell short, in the forex market, selling a currency you don’t own is a very simple process in which you just place a sell order.

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