Quote:
Originally Posted by rhodytrader
You've stated it incorrectly in your example. You do not use $500 to make a 10,000 EUR/USD trade. The $500 is only a kind of security deposit. It's not actually part of the currency transaction.
As for your initial question about how one can buy and sell at the same time, remember that when you do a forex trade you are trading the exchange rate between a pair of currencies. That means you are kind of doing a spread trade between the two - holding a long position in one simultaneous with a short position in the other.
As I indicated in an early post when you take a long position in EUR/USD you are borrowing USD and then converting that in to EUR. To use you example quote, for a 10000 EUR/USD trade at 1.3270 you would end up with a liability (short position) of 13,270 USD and an asset (long position) of 10,000 EUR.
Reverse the whole thing if you are going short. In that case you would borrow the EUR and convert it in to USD.
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Yeah,it wasn't USD 500,but it's actually USD 50(leverage 200:1).If the margin is not part of the transaction then how is it related to the profit and loss.Does that mean the margin we used is some sort of a mutual deal between us and the broker?Like if I want to begin this particular trade then just put forward a certain amount of money to the broker just to have access to the trade?
Thanx.