You borrow the currency you want to short and then trade the currency you borrowed for the currency you want to hold. So, for example, if you want to short MXN, you can borrow 1,000,000 MXN, and sell them for USD.
If the price of MXN goes down enough relative to USD, you can buy back the 1,000,000 MXN for less USD than you got when you sold them. Then you can return the MXN you borrowed and pocket the profit.
If, however, the price of MXN goes up relative to USD, you may face a margin call. The person who loaned you the 1,000,00 MXN needs to make sure you have enough USD to pay them back. You will also have to pay interest on the MXN you borrowed while getting interest on the USD you’re holding. There can be a gap between these interest rates.
If you eventually have to pay back the 1,000,000 MXN with more USD than you got when you sold it, you’ll have a loss. You can also lose money if you have to keep the position open for too long and the interest you’re paying exceeds the interest you’re getting.
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