Editing Short (finance) (section)

=== Currency ===
Selling short on the currency markets is different from selling short on the stock markets.  Currencies are traded in pairs, each currency being priced in terms of another.  In this way, selling short on the currency markets is identical to going long on stocks.

Novice traders or stock traders can be confused by the failure to recognize and understand this point: a contract is always long in terms of one medium and short another.

When the exchange rate has changed, the trader buys the first currency again; this time he gets more of it, and pays back the loan.  Since he got more money than he had borrowed initially, he makes money. The reverse can also occur.

An example of this is as follows: Let us say a trader wants to trade with the US dollar and the [[Indian rupee]] currencies.  Assume that the current market rate is US$1 to Rs. 50 and the trader borrows Rs. 100.  With this, he buys US$2.  If the next day, the conversion rate becomes US$1 to Rs. 51, then the trader sells his US$2 and gets Rs. 102.  He returns Rs. 100 and keeps the Rs. 2 profit (minus fees).

One may also take a short position in a currency using [[Currency future|futures]] or options; the preceding method is used to bet on the spot price, which is more directly analogous to selling a stock short.