Trading currency pairs
Trading usually means buying something at a low price and selling it at a higher one, so the difference between the buy and sell price is our profit. When this concept applies to trading currency pairs you can say that you take a long position.
There is also another concept of "short sale" or when you take a short position. This is when you are able to sell something at a high price and buy it later at a lower price, so the profit here would be the difference between the selling price and the buying price.
Let's say that you sit in a coffee shop in the morning and someone wants to buy your laptop for £800 because they really need it as their own computer broke down. You agree to sell it. After a couple of hours, they no longer need the laptop, but they are not able to take it with them and this is where you have the chance to close your short position. You offer to buy the laptop back at £750 and make a £50 profit (£800 minus £750).
While the example simplifies it, the concept works much the same way in the forex market. You basically make a profit by selling a currency pair with the expectation that the price will go down and you will be able to purchase the same currency pair at a lower value.
Keep in mind that when trading currencies, you can develop multiple strategies which could bring you profit. One way to directly trade currency pairs is by opening positions in the same direction as the trend (called trend trading), meaning that in an uptrend you will buy the pair while in a downtrend you will sell or short the pair.
Another way to make money with the forex market is to trade contracts for difference or CFDs. The CFDs represent a derivative trading instrument and they are available for different types of markets such as stocks, indices, commodities and currencies. If you decide to trade CFDs, you will have the opportunity to speculate on the movement of an underlying asset, but keep in mind that with CFD you don't actually own the currency pair in which you hold your position. By trading CFDs, you trade on the difference in the price and make profit accordingly.
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