short sale

A short-sale is the selling of a currency pair. Unlike the stock market, there are no special rules or requirements for going short on a currency pair. In forex trading, the first currency in a pair is known as the base currency, and the other currency is called the quote currency. When a trader places a short trade on a currency pair, he is going short on the base currency and simultaneously going long on the quote currency. Traders enter into a short-sale when they anticipate the value of the currency pair to go down. Suppose USD/JPY = 100.00. This quote shows a rate of $1 US Dollar being equal to 100.00 Japanese Yen. If a trader believes that $1 was going to worth less than 100.00 Japanese Yen, he will sell the dollar and buy the yen (short USD/JPY). If the Yen strengthens, the trader will buy back more dollars and earn a profit.