Hi
I am not shure wheather and when yes how it works:
Let’s asume I trade with a online broker and have a USDollar-Account on it.
Now asume I want to buy 1k GBP and sell JPY on the other side.
What I do not understand is how can I buy GBP and sell JPY when I only have USDollars in my pocket. Is there something converted? Is there a loss somewhere?
Well same problem with USD/CHF, while I have USD on my account whats about the CHF which I don’t have.
I am really confused.
Thanks for any help!
I’ve often wondered about all that too, I don’t even know exactly what I am selling when I put in a sell orders.
It doesnt really make sense to me, how do I make money by selling something when the price is going down ?
I do make money, but I don’t know why.
In any other scenario you make more money if your selling something while the price is going up.
One thing I can tell you is you don’t need to know all that when you trade forex, I have been live trading and making money for the past couple of months without understanding how it works.
All you need to know is, when the price is llikely to go up do buy orders, and do sell orders when you think it will go down.
The inner workings of it all is taken care of for you by the broker.
Hopefully someone will explain it all becuase I would be interested to know too.
When you sell or short a pair you are really borrowing the amount of the currency from the broker to sell it at that price. As price goes down you have the oppurtunity to buy the pair back and return the shares you borrowed to the broker and pocket the profit. example: Broker A lends you 100 of X for you to sell at 100, the price goes down to 50 so you buy it back at 50 to pay back broker A for the 100 of X your borrowed. So you really bought at 50 and sold at 100 making +50.
To really understand it all you need to stop using buy/sell because you never actually take or relinquish ownership of anything. You go long or you go short. Going long means being positively exposed to the movement of the rates (rising rates is good), while going short means being negatively exposed (falling rates is good). A spot forex trade, like a futures trade, is nothing more than an agreement to do a future exchange (though you never actually do the exchange). The margin your broker requires is a surety against loss.
@rhodytrader: Well, that makes sense to me and answered my question.
Thanks a lot for all replies 