Short selling currency is the same as opening a position to ‘sell’ a currency pair. When a trader speculates that the value of a currency will fall, they can open a position to ‘sell’ the currency. If the price of the currency falls in value, the trader can make a profit relative to the degree that the price falls. Similarly, if the trader makes incorrect speculations and the market increases in value, the investor will make a loss relative to the price increase.
When market sentiment turns negative due to factors that impact a market’s prosperity, many forex markets can decrease in value, causing many currency short sellers to enter the market. This can cause a domino-like effect, further reducing the value of the market.