Buy and sell meaning in plain words
Every trade has a direction.
- Going long (buy): you open the position expecting the price to rise. You gain if the price goes up and lose if it goes down.
- Going short (sell): you open the position expecting the price to fall. You gain if the price goes down and lose if it goes up.
A position is an open trade. You close a long by selling the same size. You close a short by buying it back. The result is the difference between the opening and closing price, multiplied by the trade size.
Going long on a currency pair
A currency pair such as EUR/USD shows how many units of the second currency (the quote currency) buy one unit of the first (the base currency). Buying EUR/USD means you buy euros and sell US dollars at the same time. If the euro strengthens against the dollar, the price rises and a long position gains.
Because a pair always has two currencies, every forex trade is long one currency and short the other. Going long EUR/USD is the same exposure as being short dollars against euros.
Short selling in forex
Short selling forex means selling the pair now and buying it back later. Selling EUR/USD means you sell euros and buy dollars. If the euro weakens, the price falls and the short gains.
For beginners, the key point is that you do not need to own euros to sell EUR/USD. In leveraged forex and CFD trading you trade the price movement, not the physical currency. The broker holds margin, a deposit taken from your account, while the position is open.
Profit and loss examples
The formulas are the same for any instrument. Only the sign changes:
| Direction | Opens at | Closes at | Result per unit |
|---|---|---|---|
| Long | Ask price | Bid price | Closing price minus opening price |
| Short | Bid price | Ask price | Opening price minus closing price |
Then multiply by the position size. The lot size and the pair's pip value turn the price difference into money.
To see this with real figures, enter your own inputs in the calculator below: the instrument, the direction (buy or sell), the opening price, the closing price and the volume in lots. It shows the result in pips and in money.
Fill in the empty fields to see the result.
Try the same opening and closing prices with the direction switched. The result has the same size but the opposite sign. Before costs, a move that pays a long costs a short exactly the same amount. More worked cases are on the profit and loss page.
Which price you trade at: bid and ask
Every quote has a bid and an ask. A buy opens at the ask and closes at the bid. A sell opens at the bid and closes at the ask. The gap between them is the spread, so every new position starts slightly negative.
Charts in MetaTrader usually show the bid line. Your pending order prices therefore trigger on different sides:
- Buy orders and the stop loss on a short trigger on the ask.
- Sell orders and the stop loss on a long trigger on the bid.
This explains why a short is sometimes stopped out even though the chart never seemed to touch the stop level. The spread widened and the ask reached it.
Ready to try it on a real or demo account?
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Short selling in CFDs vs stocks
A CFD is a contract that pays the price difference between opening and closing. It makes long and short mechanically the same. A traditional stock short does not work that way.
| Point | Stock short (exchange) | CFD short |
|---|---|---|
| Borrowing | You borrow shares through a broker | No borrowing, the contract is synthetic |
| Borrowing cost | Stock loan fee, can rise for hard-to-borrow shares | Overnight swap instead |
| Dividends | Short seller pays the dividend to the lender | Share and index CFDs usually carry a dividend adjustment against the short |
| Recall risk | Lender can recall the shares | No recall, but the broker's terms and stop-out apply |
| Restrictions | Exchanges may ban or limit shorting | Depends on the broker's conditions |
See OTC vs exchange for how off-exchange contracts differ from listed markets.
Costs that differ by direction
The spread costs the same either way. The swap does not. The overnight charge or credit depends on the interest rate difference between the two currencies and on the broker's markup, so a long and a short on the same pair usually have different swap values. Check the swap fees page and the triple swap day before holding positions overnight. The total cost of a trade adds spread, commission and swap together.
Risk in each direction
- When the underlying price of a stock or metal falls, the loss stops at zero. A rising price has no ceiling, so the theoretical loss on a short is open-ended.
- With leverage, both directions can wipe out your deposit fast. A margin call and stop out can close positions at a loss, and weekend gaps can push a fill past your stop.
- A stop loss limits a planned loss in normal conditions. It cannot guarantee the price during gaps or slippage.
Leveraged forex and CFD trading can lose money quickly in either direction. Practising both directions on a demo account costs nothing.
Note for traders in Pakistan
Know the local rules before you trade. On platforms, per the SECP, offshore forex/CFD platforms operate without regulatory approval in Pakistan. Also, per the SBP, remitting foreign exchange to overseas forex/margin/CFD platforms is not allowed through any payment channel (FERA s.5(1)). Read Law and regulators for the details.
Frequent questions
What does long and short mean in forex?
Long means you bought and gain if the price rises. Short means you sold and gain if the price falls.
Do I need to own a currency to sell it?
No. In leveraged forex and CFDs you trade price movement with margin, so you can sell a pair without holding the base currency.
Is shorting riskier than buying?
In principle, yes. Price can rise without limit, so a short's loss has no theoretical cap. With leverage, either direction can lose your deposit quickly.
Why did my sell trade show a loss right after opening?
You sold at the bid, and the position is valued at the ask. That gap is the spread.
Is the swap the same for buy and sell?
Usually not. Long and short swaps on the same instrument often differ, and one may be a charge while the other is smaller or positive. Check the current values in your trading platform.