When speculators expect the exchange rate of a certain currency to fall, they will sell the currency in the foreign exchange market for a long time. If the currency exchange rate did fall at that time, speculators could buy cash at the falling exchange rate and speculate for profit. This speculative transaction of selling before buying is called "short selling" or "short selling".
Generally speaking, there are two forms of foreign exchange speculation:
1, buy first and then sell, that is, "buy more". When speculators expect a currency to appreciate, and the price of this foreign currency is relatively low in the foreign exchange market, they first buy this currency and sell it when the exchange rate of this currency rises. For example, in February, the USD/JPY was 1, which was equal to11JPY. Speculators think that the dollar will appreciate in April, so they spend 1 10000 yen to buy 10000 dollars. In April, as he expected, the dollar against the yen was 1.
2. sell first and then buy, that is, "short selling". When speculators expect a currency to depreciate, and the price of this foreign currency is relatively high in the foreign exchange market, they sell this currency first, and then buy this currency when it really falls, earning the difference. For example, in the above example, speculators think that the dollar will depreciate in April, and investors will get 654.38+0654.38+00000 yen when they sell 654.38+00000 dollars. In April, as he expected, 1 USD was exchanged for 654.38+0000 yen, and investors sold yen and bought 654.38+0654.38+00000 yen.
In the forward foreign exchange market and the forward foreign exchange market, there are some formal differences in foreign exchange speculation, but the principle is the same.