At what part are we using our money?

[rhodytrader]

pippy123 & genghisclown are right, even if they don't seem too confident about it.

When you do a trade you are borrowing the short currency, converting it to the long currency, then putting that on deposit. None of your own money is used at all in there. (That process is where the interest comes in to play, by the way). The margin you put up is just a security deposit against a decline in value.

[anzsai]

Greetings,
Currently I'm using MoneyForex Trading Platform to practice, can somebody explain to me what open position means?

[genghisclown]

When you buy or sell a pair (USD/CHF, for instance) you are taking a position (long or short) on it. This position is considered 'open' until you close it by selling or buying it back (the reverse of what you did to open it). This can be done manually or triggered by a stop loss or take profit order.

The value of your open positions is your 'exposure' to the markets.

[toptick07]

This babypip lesson may clear up many of your questions:

http://www.babypips.com/school/leverage_the_killer.html

The lesson wasn't written to clarify account specific questions, but it does define many of the terms that seem to be unclear to you. Good luck!

[toptick07]

For more general info try: Forex Street. The Foreign Exchange Market

[anzsai]

I don't get it,how is it possible to buy and sell currencies at the same time?From the demo account(moneyforex),only 1 used margin (example: EUR/USD:1.3270,so USD 500 is used to buy EUR 10000 and sell USD 13270 considering the spread is 2) for 1 certain trade.
I may understand the buying part,but what about the selling part?

[rhodytrader]

Originally Posted by anzsai

I don't get it,how is it possible to buy and sell currencies at the same time?From the demo account(moneyforex),only 1 used margin (example: EUR/USD:1.3270,so USD 500 is used to buy EUR 10000 and sell USD 13270 considering the spread is 2) for 1 certain trade.
I may understand the buying part,but what about the selling part?

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.

[anzsai]

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.

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.

[rhodytrader]

Originally Posted by anzsai

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?

That's pretty much exactly it. The margin has nothing at all to do with your profits on a trade. It is strictly a security deposit so your broker doesn't have to cover any losses you might make on a position.