Really basic question about buy and sell orders

I understand buy orders - you buy XXX and wait for the price to go up --> profit.

I don't understand how sell orders work - how can you sell something you don't own? I'm having difficulty wrapping my head around the idea.

I believe you're talking about 'short selling'

Borrowing a lot to sell from someone with a promise to buy it back later. You would hope to profit from selling high and buying back later for a profit.

Thanks for the reply.

So in this case, would you be borrowing from the broker or another trader, or does that depend on the type of broker you use (ECN vs bucket shop)?

From your broker I believe.

I'm not sure the other details.

buy = make money when price goes up
Sell = make money when price goes down.

Every trade (Buy or Sell) always involves a buy of one currency and a sell of the other currency in the pair. Example:

EUR/USD - EUR is the base currency for the pair and USD is the quote currency for this pair. If you buy EUR (long EUR) you are simultaneously selling USD. The inverse is true is you are selling (short) the EUR.

Thank you for asking this question. As someone fairly new in the Forex world I was getting very confused by the buy and sell.

Thanks for clarifying!!

While it is true what was just said it's not really applicable. The effect of selling eurusd is like buying usdeur except that it doesn't exist so you are in effect selling something you don't have. I heard it like this.

Imagine you had a friend (we'll call him bob) that had just bought the latest and greatest video game system a month before xmas as a gift for his children. He paid $1000 for it on ebay because that was the going rate at the time. You were pretty damn sure that this could be bought for the regular price in the store for $300 before xmas. So what did you do? You asked bob if you could borrow it until xmas but that you would return it in time for xmas. So you took your freshly borrowed game system and sold it on Ebay for $1000 except that you owed one game system to bob. You were short a game system. That's where the term short comes from. Then in 2 weeks new systems arrived in stores and you bought one for $300. You went to bob and said "Hey Bob. Thanks for letting me borrow this" and you game it to him. You just made $300. Now imagine that new systems never made it into stores. Demand increased as xmas got closer. The Ebay prices went up to $2200. It was 2 days b4 xmas and you had no choice and paid $2200. Now you just lost $1200. This is how short selling works and this is how you win and lose. You might ask why anyone would do this? Well usually we are talking about banks that have what you want to borrow and will make money off the short in interest or swap rates. I believe that you will notice that shorts tend to have higher swaps than longs. I hope this helps.