Issue #65: Tuesday, April 21, 2009

By Sean Hyman Just like in stocks, there are two main types of trades in the FX market: Buy trades and sell trades.

When you place a buy order, you’re betting the first currency in your pair will rise against the second. A sell order simply means you’re betting the first currency in your pair will fall in price against the second currency.

So say you believed the euro was going to rise, and the dollar was going to fall. How would you place that trade?

Well, first of all, you have to know the trading symbol. In this case, you’re trading EUR/USD (euro vs. U.S. dollar) pair. (NOTE: There is NO “USD/EUR” pair so if you want to trade the euro and U.S. dollar you have to use the EUR/USD symbol.)

If you’re betting the euro will rise against the dollar, you would be buying euro against the dollar. In other words, you feel that the euro will appreciate much faster than the dollar. To do this, you would place a “buy order” for the EUR/USD.

At this point, if the EUR/USD pair goes up in price then you make money.

On the other hand, if you feel the euro will go down and the dollar will rise, then you would want to sell the EUR/USD pair. To do this, you place a “sell order on the EUR/USD.” That trade effectively sells euro and buys dollars at the same time (some refer to this as “selling short”).

If you want to bet on the dollar rising against the euro, you would do the exact same thing. You would still place a “sell order on the EUR/USD,” because you’re still selling euro and buying dollars.

At this point, if the EUR/USD pair goes down, you grab the profits. It’s as simple as that.

Sean Hyman, “Professor FX” and Long-Time Currency Analyst Explaining How You Can Succeed in the Currency Markets.
Sean Hyman spends his days teaching his fellow professionals in the industry how to trade the $4 TRILLION currency market. Now he brings his 15 years of financial experience to you. From long-term currency strategies, to quick FX-trading moves usually reserved for the professionals, Sean will tell you everything you need to know to succeed in the currency markets.