How To Short The Euro? Full Guide

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How To Short The Euro:

Spot trading - the most direct way to short the Euro.
ETFs - another effective way to short the Euro without directly trading currencies.
Futures contracts - agreements to buy or sell a particular asset at a future date at a predetermined price.
Options - give you the right, but not the obligation, to sell an asset at a specific price before a certain date.

Shorting the Euro, or betting against its value, can be a profitable strategy if you anticipate that the currency will decline. Shorting in Forex trading means selling a currency pair with the expectation that its value will decline. For example, shorting the Euro (EUR) against the US Dollar (USD) means selling EUR/USD, expecting the Euro to weaken against the Dollar.

This article will guide you through the various methods available for shorting the Euro, providing insights into the tools and strategies you can use to take advantage of a falling Euro.

How to short the EUR? Available options

Shorting a currency involves selling it with the expectation of buying it back later at a lower price, thereby making a profit from the price difference. In the context of the Euro, you would be betting that the Euro will decrease in value relative to another currency, such as the US Dollar. There are several ways to short EUR: spot trading, ETFs, futures, options.

Spot trading

Spot trading is the most direct way to short the Euro. Here’s how you can do it:

Open a trading account. Select a reliable Forex broker that offers competitive spreads and leverage options.
Choose a currency pair. The most common pair to trade when shorting the Euro is EUR/USD. This means you are selling Euros and buying US Dollars.
Place a sell order. Using your trading platform, place a sell order on the EUR/USD pair.

High liquidity.
Availability of leverage.

Leverage can amplify losses.
Market volatility can lead to rapid changes in price.

ETFs (Exchange-Traded Funds)

ETFs are another effective way to short the Euro without directly trading currencies. Some ETFs are designed to inversely track the Euro.

Select an inverse ETF: Look for ETFs such as ProShares UltraShort Euro (EUO), which aims to deliver twice the inverse of the daily performance of the Euro.
Buy shares of the ETF: Purchase shares of the inverse ETF through your brokerage account.

Simplicity and ease of access.
No need to manage a Forex account.

Tracking errors can occur.
Not suitable for long-term holding due to daily resetting.

Imagine, that you decide to invest $5,000 in EUO shares. With the Euro declining by 5%, and considering the 2x leverage of EUO, the ETF’s value increases by approximately 10%. Then your EUO shares appreciate by 10%, resulting in a $500 gain ($5,000 * 10% = $500).

ProShares UltraShort Euro (EUO) Historical chart

Futures contracts

Futures contracts are agreements to buy or sell a particular asset at a future date at a predetermined price. Shorting the Euro through futures contracts involves selling Euro futures.

Open a futures account: Choose a broker that offers futures trading.
Sell Euro futures contracts: Place a sell order on Euro futures, such as those offered by the CME Group.

Standardized and regulated contracts.
Potentially lower transaction costs compared to forex trading.

Requires a higher level of expertise.
Potential for significant losses if the market moves against you.

Imagine you're trading Euro futures contracts, which are like agreements to buy or sell Euros at a future date and a set price. These contracts are traded on exchanges like the CME.

For instance, let's say you decide to trade the Euro FX futures contract (6E). Each contract represents 125,000 Euros. Now, after a month of trading, the price of Euro futures drops quite a bit, indicating economic conditions are changing

.So, you decide it's a good time to take your profits and close your position. Let's say the price dropped by $0.05 per Euro. Since each contract represents 125,000 Euros, your profit per contract would be $0.05 multiplied by 125,000, which equals $6,250. If you had two contracts, your total profit would be double that, so $12,500.

Options trading

Options give you the right, but not the obligation, to sell an asset at a specific price before a certain date. Shorting the Euro through options involves buying put options on the Euro.

Open an options account: Choose a broker that offers options trading.
Buy put options on EUR/USD: Purchase put options, which increase in value as the Euro declines against the Dollar.

Limited risk to the premium paid.
Flexibility in strategy.

Options can expire worthless if the market doesn’t move as expected.
Requires knowledge of options pricing and strategies.

Below are some brokers that offer competitive spreads, reliable execution and advanced trading tools for effective shorting EUR.

Comparison table of the top brokers that enable shorting the EUR
	Plus500	Pepperstone	OANDA	FOREX.com	Interactive Brokers
Min. deposit, $	100			100
Min Spread EUR/USD, pips	0,5	0,5	0,1	0,7	0,2
Max Spread EUR/USD, pips	0,9	1,5	0,5	1,2	0,8
Currency pairs	60	90	68	80	100
Options
ETFs
Futures
Open account	Open an account Your capital is at risk.	Open an account Your capital is at risk.	Open an account Your capital is at risk.	Study review	Open an account Your capital is at risk.

Why short the Euro?

There are several reasons you might consider shorting the Euro:

Economic indicators. Weak economic data from the Eurozone.
Political instability. Political uncertainty or instability within member countries.
Interest rate differentials. Differences in interest rates between the Eurozone and other regions.
Global market sentiment. Overall risk-off sentiment in global markets.

EUR/USD chart online

Key considerations and risks

Market analysis

Before shorting the Euro, conduct thorough market analysis. Pay attention to:

Economic indicators. GDP, inflation, and unemployment rates in the Eurozone.
Central bank policies. ECB monetary policy decisions and statements.
Political climate. Elections, referendums, and geopolitical events affecting the Eurozone.

Risk management

Implement robust risk management strategies:

Use stop-loss orders. Set stop-loss orders to limit potential losses.
Diversify your portfolio. Don’t concentrate all your investments in one strategy or asset.
Monitor market conditions. Stay informed about market news and economic data releases.

Essential Insights for Shorting Euro

As a seasoned trader, I've learned that staying informed about the broader economic landscape is crucial when shorting the Euro. Economic indicators such as GDP growth, inflation rates, and unemployment figures play a significant role. Weak economic data from the Eurozone often signals a decline in the Euro’s value, making it a good time to short.

Central bank policies, especially those of the European Central Bank (ECB), are also pivotal. A dovish stance from the ECB, implying lower interest rates or more quantitative easing, usually weakens the Euro. Keeping a close eye on ECB announcements can provide strategic insights.

Political instability within the Eurozone can lead to volatility and a weaker Euro. Events like elections or referendums can significantly impact the Euro’s value. Staying updated with global news and understanding its potential impact is essential.

Engage with the trading community, participate in webinars, and stay updated with the latest market analyses. The more informed and adaptable you are, the better your chances of success in shorting the Euro.

Conclusion

Shorting the Euro can be a profitable strategy if executed correctly. By understanding the various methods available, such as spot trading, ETFs, futures contracts, and options, you can choose the approach that best fits your risk tolerance and trading experience. Always conduct thorough research and implement strong risk management practices to protect your investments. With careful planning and strategic execution, you can capitalize on the opportunities presented by a declining Euro.

FAQs

How do I start shorting the Euro?

To start shorting the Euro, you need to open an account with a forex broker, select the EUR/USD currency pair, and place a sell order. You can also use other financial instruments like inverse ETFs, futures contracts, or put options to short the Euro.

What is the role of leverage in shorting the Euro?

Leverage allows traders to control larger positions with a smaller amount of capital. While leverage can amplify profits, it can also magnify losses. It’s crucial to use leverage carefully and understand the risks involved when shorting the Euro.

How does economic data affect the Euro?

Economic data such as GDP growth, inflation rates, and employment figures can significantly impact the Euro’s value. Positive economic data typically strengthens the Euro, while negative data can weaken it. Traders should stay informed about economic releases to make informed decisions.

What should I consider before shorting the Euro?

Before shorting the Euro, consider conducting thorough market analysis, understanding the economic and political factors influencing the Eurozone, and implementing risk management strategies. It’s also important to choose the right financial instrument for your trading style and risk tolerance.

Team that worked on the article

Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data. He is also an educator in the field of finance and technology.

As an author for Traders Union, he contributes his deep analytical insights on various topics, taking into account various aspects.

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Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).

Forex Trading

Forex trading, short for foreign exchange trading, is the practice of buying and selling currencies in the global foreign exchange market with the aim of profiting from fluctuations in exchange rates. Traders speculate on whether one currency will rise or fall in value relative to another currency and make trading decisions accordingly. However, beware that trading carries risks, and you can lose your whole capital.

Index

Index in trading is the measure of the performance of a group of stocks, which can include the assets and securities in it.

Risk Management

Risk management is a risk management model that involves controlling potential losses while maximizing profits. The main risk management tools are stop loss, take profit, calculation of position volume taking into account leverage and pip value.

Economic indicators

Economic indicators — a tool of fundamental analysis that allows to assess the state of an economic entity or the economy as a whole, as well as to make a forecast. These include: GDP, discount rates, inflation data, unemployment statistics, industrial production data, consumer price indices, etc.

Forex Risk Management

Risk management in Forex involves strategies and techniques used by traders to minimize potential losses while trading currencies, such as setting stop-loss orders and position sizing, to protect their capital from adverse market movements.

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