Loosing money when not trading

[Joe101]

Hi Everyone,

I've read through the school of pipsology, but there's still one concept I'm still having trouble with. As when your trading a pair you are taking the side of one pair over the other, what happens when you are finished your trade but the market is still carrying on?

For example, say my home currency is GBP but I want to trade the EUR/USD. So I buy up 10,000 units of EUR/USD and go long for 200 pips! Boom! Money in the bank. So I then sell the pair (this is where I think I loose understanding) and by selling EUR/USD I now have dollars. I go to bed happy but overnight the EUR/USD goes up another 300 pips but as I sold yesterday I am taking the dollar position and am overall down 100 pips?

I think I've misunderstood something somewhere, is it because you are buying lots rather than converting your own currency you can buy and sell like this?

Thanks for any help,
Joe

[Mr Gone]

It if confusing, i really don't understand your question. Don't fret out with that calculation, go step by step and learn propper risk management. And yes when you close that second trade you are overall down 100 pips.

[Jezzode]

First of all ignore the deposit currency for the moment.

When you initiate a trade in EUR/USD your gain or loss will always be in USD, the cross of the pair.

You are buying 10,000 units of EUR, and when you close your trade you are then selling 10,000 units of EUR, therefore your profit or loss is in USD. The base currency of the pair, (the first currency quoted) is what your buying or selling against the cross of the pair (the second pair quoted).

The profit or loss of your trade is then realized in US dollars and converted to GBP which is your deposit currency at the current rate of the GBP/USD pair.

[Jezzode]

If your going to be trading pairs where by USD is always going to the cross currency then you will benefit from making your deposit currency USD. This will make any calculations easier for you.

[Joe101]

Great, thank you very much for your help, I get it now. I guess conversion to home currency is just an added risk to be managed, as I guess profits in dollars can be eaten into if the GBP/USD markets make some huge permenant movement like in 2008, though I guess the falling pound would have helped if I had money in dollars!

Thanks again,
Joe

[Jezzode]

It will make little difference with the deposit currency to be totally honest. The only issue you have to take into consideration if you do open a USD deposit account is that when, and if you make a withdrawal you will have to convert it back into GBP. It's at that point in time when the GBP/USD pair can be used to calculate what you GBP return will be.