In the financial market, there is a saying “Buy low and sell high”.
By buying low, traders are expecting a certain currency to appreciate in the future and they will close their positions later at a higher price. This process is known as “going long”.
In this example: if the AUD/USD pair is worth 0.8000 and a trader’s analysis shows that it could appreciate in the future to 0.8010, they will go long on this pair. They will make money from the difference in price movement, which in this case is 10 pips.
Opposite to this, by selling high, traders are expecting that a certain currency will depreciate in the future. They sell it at the current market price and buy it back later at a cheaper price. This action is known as “going short”.
An example of this is if the AUD/USD is worth 0.8000 but a trader’s analysis is showing that it might depreciate in the future to 0.7990. The trader will sell or in other words ‘go short’. And same as before, they will make money from the price movement which again, in this case, is 10 pips.