How to make money from a falling market

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Posted by on Friday December 2, 2011 12:24:26:

One of the things most newbies to forex trading may not know as I also experienced is that you can actually make money when prices are falling. In forex trading, we trade currencies so what do you do when prices of the currency pair in which you are holding to is falling or anticipated to fall? It's simple, you get out of the position and allow it to fall and then buy it back.

This system of trading is called short selling or going short. You actually make money from it if you anticipate a move and act before it actually falls. For instance, today being NFP day and it would certainly affect the USD and other currencies paired to it like the EURUSD. It is anticipated that the USD would grow stronger given the report that NFP is favourable to the USD so many buyers expect the USD to rise and other currencies paired to it such as the EUR to fall. Since 1 eur is about 1.3usd, if usd appreciates, then the final value would probably be less than 1.3usd. So the best thing to do, given the anticipated results is to short sell EURUSD and wait for the news to finally come out. If it happens as expected or even better, then the price of EURUSD would fall much lower relative to the magnitude of that report.
So there could be many things that would make a trader feel that a stock or currency is going to fall at a due time so the best thing to do in that situation is to sell of your holdings if your are currently holding onto it and wait for it to fall before making any buys again. The way short selling really works is that traders sort of borrow funds from brokers and short sell, even when they are not holding any position previously, when prices have then fallen, their gain is the difference by which the price fell and the amount of units they sold.

So you not only can make money by anticipating a price appreciation and going long, you can also make profits by going short just before prices have fallen to lows.

Re: How to make money from a falling market Posted by Felix Okoli on Friday December 2, 2011 at 20:20:1:

Update: Today was a good day from shorting eu. The price fell from about 1.3533 to 1.3365. I gained over 100 pips from this. The bear may still continue by Monday