Hi folks,
I just have a question. More than $5 trillion is traded daily on the forex market.
Where does the money reside ? Is it with the banks ?
And regarding the broker.
If I win trades, do I make money off the broker, or the banks ? Because no matter what institution you are, money is always at a bank. (Usually)
I’m just trying to learn more about the workings of such things.
Thanks for the help
There are two types of money markets, real money and nominal money.
The real money rests in bank accounts and when two parties do a trade they transfer the real funds from their own account to the counterparty’s account. A typical example might be a European company that buys goods in US dollars and buys the appropriate amount of USD from his bank in Euros in order to pay for them.
We do not trade in real money positions with our brokers. We do not actually buy or sell anything. We only take a view on the direction of the exchange rate. The position size is just a nominal sum to which the change in the rate is applied in order to determine how much we win or lose. The only real money involved are the actual gains or losses which are between the client and the broker. The broker (if properly regulated) keeps clients’ funds in an independent account in a bank, for example, Barclays Bank. Your funding payments are maintained there and your gains as they accrue.
Futures and options are another form of nominal money. If you buy or sell these you take a commitment to deliver or receive the nominal amount at a future date at a set price. But in practice, these positions are usually closed before expiry without any form of physical exchange of real funds.
The fact that we do not deal in actual money in all the various currencies is why it does not matter in what currency your capital is denominated. The broker just converts it at the appropriate rate and credits your equity account.
Fascinating isn’t it - how to create and profit from money that doesn’t really exist! 
Thank you very much for your detailed reply. Much appreciated!
its a very nice reply from all, got so many fine lines with exact information. thanks again for nice post.