How Buying and Selling Works

The Two Sides of Every Trade

Every transaction in a market requires two parties: a buyer and a seller. When you place a trade, someone on the other side is taking the opposite position. This is what creates a market.

As a trader, you make money by correctly predicting the direction of price movement. There are two fundamental ways to do this.

Going Long (Buying)

When you go long, you buy an instrument expecting its price to rise. This is the most intuitive form of trading — buy low, sell high.

Example:

1. You buy 1 share of Tesla at $200
2. The price rises to $220
3. You sell your share for $220
4. Your profit: $220 - $200 = $20

If instead the price drops to $185 and you sell, your loss would be $200 - $185 = -$15.

Going Short (Selling)

Short selling is the reverse: you sell something first, then buy it back later at a lower price. This concept confuses many beginners, but it's straightforward once you understand it.

In futures and forex, short selling is built into the market structure — you're simply taking the opposite side of a contract. You don't need to "borrow" anything.

Example:

1. You short (sell) EUR/USD at 1.1000
2. The price falls to 1.0950
3. You buy it back (cover) at 1.0950
4. Your profit: 1.1000 - 1.0950 = 50 pips

Short selling means you can profit when prices fall. This is enormously powerful because markets go down as well as up.

Profit and Loss Calculation

Your P&L (profit and loss) on any trade is simply:

• Long trade: Exit Price - Entry Price = P&L per unit
• Short trade: Entry Price - Exit Price = P&L per unit

Multiply by your position size (number of shares, lots, or contracts) to get the total dollar P&L.

The Spread

When you look at a price quote, you'll see two numbers: the bid (what buyers will pay) and the ask (what sellers want). The difference is called the spread.

• If EUR/USD shows Bid: 1.0998 / Ask: 1.1000, the spread is 2 pips
• When you buy, you pay the ask price (higher)
• When you sell, you receive the bid price (lower)
• The spread is an implicit cost of every trade

What Happens After You Click "Buy"

1. Your order goes to the broker/exchange
2. It's matched with a seller at the agreed price
3. The trade appears in your account
4. You now have an open position that gains or loses value in real time
5. When you close the trade (sell if long, buy if short), the P&L is realized

Understanding this flow is essential. Every penny of profit or loss comes from this simple mechanism — the difference between your entry price and your exit price, multiplied by your size.

• Going long means buying first and selling later at a higher price for profit
• Going short means selling first and buying back later at a lower price for profit
• Every trade has two sides — for every buyer there must be a seller
• You can profit in both rising and falling markets

Zastosuj swoją wiedzę w praktyce

Śledź swoje konta prop firm, analizuj transakcje i rozwijaj się jako finansowany trader z PropTally.