Shorting currencies?

[michael25]

Hi guys,
I'm new to currency trading and just have a question regarding short positions on currencies?...how do you do it? Do you just buy the opposing base currency?

eg: if I were in the aus/usd market and I wanted to short, would I just buy usd/aus? that makes sense right?

Any help would be appreciated..
cheers

 

[ithatheekret]

If you buy AUS/USD you're selling USD.

If you sell AUS/USD you're buying USD.

 

[Timmy]

Hi Michael - you are right. By getting long one of the currencies in the pair you are automatically getting short the other in the pair. There are market conventions in how you express yourself, so to short the AUD against the USD you "sell" AUD/USD (you are long the USD against the AUD). To get long the AUD against the USD you "buy" AUD/USD (and you are automatically short the USD against the AUD). Hope that makes sense...

 

[tayser]

Currency pairs are only ever expressed one way for a good reason...

i.e

EUR/USD - never USD/EUR
GBP/USD - never USD/GBP
AUD/USD - never USD/AUD
NZD/USD - never USD/NZD
USD/CAD - never CAD/USD
USD/CHF - never CHF/USD
USD/JPY - never JPY/USD
EUR/GBP - never GBP/EUR
EUR/AUD - never AUD/EUR
GBP/AUD - never AUD/GBP
AUD/CAD - never CAD/AUD
AUD/NZD - never NZD/AUD
AUD/CHF - never CHF/AUD
AUD/JPY - never JPY/AUD
EUR/JPY - never JPY/EUR

so when you say you're "short on X" or "long on Y" they know exactly which way you've traded a pair

exchange rates always expressed in the above format (1 of the currency on the left = x amount of the currency on the right) - so if you had AUD/USD rate of .9667 and you want to know what 1 USD would be worth in AUD, you divide the AUD/USD rate by 1, or 1.0344.

rule of thumb: XAU (gold) is always on the left. EUR is always on the left (except XAU/EUR), GBP is always on the left (except EUR/GBP, XAU/GBP), AUD is always on the left (except EUR/AUD, GBP/AUD, XAU/AUD), NZD is always on the left (except EUR/NZD, GBP/NZD, AUD/NZD, XAU/NZD). USD is predominately on the left (except EUR/USD, GBP/USD, AUD/USD, NZD/USD & XAU/USD) and so on. JPY is always on the right (afaik?).

As the guys above have explained, when you buy a pair, you're selling the currency on the right of the pair and buying the currency on the left of the pair (BUY AUD/USD - hold AUD and have sold USD - you're "short on USD" or "long on AUD" in this instance), and when you sell a pair you're selling the currency on the left and buying/holding the currency on the right (SELL AUD/USD - hold USD and have sold AUD - you're "long on USD" or "short on AUD").

When you hold a currency in a pair which has a higher central bank interest rate than the other currency in the pair you're carrying trading (take rate of the currency you hold and minus the rate of the currency you sold). Placing a BUY order on AUD/USD is carrying trading (AUD = 7.25%, USD = 2%), placing a sell order on USD/CHF is also carrying trading (USD = 2%, CHF = 2.75%). So if you were short on AUD/long on USD on AUD/USD, you would effectively paying interest to your broker (whereas they pay you if you were long on AUD/short on USD in AUD/USD) with each rollover (5pm New York time each day).

HTH.

 

[michael25]

ah..i see! thanks heaps for your help guys

 

[Vondelpark]

Hi Guys,

New to the forum, been playing around (meaning punting on as opposed to any sort of serious TA or the like) on currencies for over a year relatively sparingly. Decided to actually get a bit more serious about it and scrub up the knowledge and information aspects and try to add some methods to my otherwise punting madness. (I have a trading background in derivatives, had 4 years out but got the bug back and have been 'punting' the FX market with some fair success).

Thanks Tayser for the explanation on the interest factors - I suspected it was the case as to why I was getting credited interest / debited interest when holding certain currency crosses.

Look forward to learning more and see how we go. Seems like some of the major currencies are at important levels - EUR/USD and AUS/USD.

Just one point on why we are discussing shorts - always interested how people approach significant resistance levels with their trading plays. Do people play shorts in front of this resistance and hope for a retrace to scalp, or do people think it is better to sit back and see if the resistance is broken, and try to ride the stops when hit?

Good luck!

VP