A short position means selling an asset you don’t own (or borrowing it), with the plan to buy it back at a lower price. You profit when the price falls.
How Shorting Works in Forex
In forex, shorting is simple because you’re always selling one currency to buy another:
- Sell EUR/USD at 1.0850 (short EUR, long USD)
- Price drops to 1.0750
- Buy back at 1.0750
- Profit = 100 pips
Long vs. Short
| Long (Buy) | Short (Sell) | |
|---|---|---|
| Entry | Buy | Sell |
| Exit | Sell | Buy |
| Profit when | Price ↑ | Price ↓ |
| Loss when | Price ↓ | Price ↑ |
When to Go Short
- Bearish technical signals
- Negative economic data for base currency
- Central bank rate cuts
- Breakdown below support
Key Points
- Shorting in forex is as easy as buying
- No borrowing required (unlike stocks)
- Risk is theoretically unlimited (price can rise infinitely)
- Always use a stop loss when shorting