Shorting the Dollar A Beginner’s Guide to Trading

By Busy Fox Aug 24, 2022

Even if you don’t know much about the Forex market and how it operates, you’ve definitely heard about short trading. While this kind of trading may make you a fortune if done correctly, the dangers are also high. That is why we have compiled the fundamentals of short trading into a single short essay for you to read and educate yourself on. We’ll focus on the US dollar here, but all of the tips and methods may be applied to other currencies as well.

Longs and shorts are defined.
Everyone has an instinctive grasp of successful trading: buy cheap, sell high, and the difference is your profit. Such transactions, known as longs or long positions, are rather popular. However, there is a method to profit from a currency even if you believe its value will fall. Basically, you sell them for a high price and then buy them for a low price. But how are you going to sell something you don’t have? You could always borrow it. These are known as short trades.

While we’re largely discussing currencies today, short positions may be best illustrated by using stocks as an example. Assume you’ve done extensive market research and determined that the price of Apple stocks would plummet by the evening. You run to your broker and borrow 1,000 shares from him with the intention of selling them for $160 apiece. When the price drops to $150 a share, you buy 1,000 more shares and return them to the broker. The net profit in this case is $10,000, less the transaction cost.

The process itself is rather straightforward, but when applied to other assets, certain complexities may emerge. Let’s take a deeper look at how to short the dollar on Forex.

Shorts on the US dollar
To begin with, brokers will not lend you any assets for free. Margin lending is the practice of charging you a fee for each day your short position is open. However, most brokers do not charge you for the first day, so if you return assets on the same day, you will not have to pay that price. You should also avoid borrowing too much, even if you have adequate cash to take a position: if your debt becomes too large, the broker may force-close your short.

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