Down Trends and Up Trends (Or What is Bi-Lateral Trading?)

People trading in the S&P 500 and other stock market indices often talk about making money on the up trend (buying at a lower price and then selling at a higher price) or down trend (shorting a stock or selling a stock they don't yet have with the expectation that the price will drop so that they can then buy what the already sold and make a profit). With Forex trading, you can make money on both the down and up trend in a single trade. This is taking advantage of bi-lateral trading.

Huh? Bi-lateral trading?

Yes, darlings, bi-lateral trading. When you make a Forex trade, it is always pitting one currency against another, for example, the British Pound against the Japanese Yen. OK, hypothetical situation: the British economy is in the toilet and the Pound with it. The Japs on the other hand, just announced a year-on-year GDP growth of 10%! (Purely hypothetical situation, don't get excited.) So you're thinking the Pound is going to continue losing value relative to most other currencies while the Yen will be increasing in value. What do you do with this notion? Well, what do you do in a two-horse race where one of the horses is only running on three legs and the other just won the Kentucky Derby? You bet on the horse with all four legs, obviously! So as with the Yen and Pound scenario, what any sane, right-thinking trader would do would be to buy Yen against the Pound. This way, you get to take advantage of both the down trend AND the up trend. Now you can start getting excited.