# At what part are we using our money?

Greetings,
I have a question,it may sound dumb but not to me…
It is said that we are buying and selling currencies at the same time.So at which part are we spending our money?The buying part or the selling part,example:
when trading EUR/USD and I have USD 1000 in my account then I buy 10000 unit of EUR for a 100:1 margin,how much money I’m spending anyway?Is it EUR 100 or USD 100?

You didn’t mention the price of the pair. Last time I traded EUR/USD the price was 1.3318, indicating that it takes 1.3318 dollars to buy a euro.

If you buy 10,000 EUR/USD at 1.3318 for a total of \$13,318 USD, then you should be spending something like \$133.18 USD, not counting the spread. The rest is borrowed on margin at 100:1, as you said. I think that makes you long 10,000 euros and short 13,318 US. Or something like that.

I think.

At both selling/buying you are using your money. when you buy the EUR/USD you are buying EURO \$ and selling US \$. When you sell the EUR/USD you are Buying US \$ and selling EURO \$. It’s just exchanging your money for another currency in hopes (for lack of a better word) that the exchange rate will go up/down. That’s it. You spend how many pips (or ticks) the market moves based on the price of the exchange rate. some pips are more than others. So whenever you buy a pair, if it depreciates you lose money and if it appreciates you make money. basically it is whenever you exit that you lose or make money (if you exit when the exchange rate is lower then you bought it you lose money, higher when you bought it make money and vice versa in selling it.) this may sound confusing, but just demo trade and you’ll understand.

Ah, maybe I misunderstood the question. It seemed to me [B]Anzsai[/B] was asking how much it costs to open the trade. However, the close of your trade (when you sell back the Euros and buy back the Dollars) is what will determine whether you make or lose money… and how much the trade really profits or costs.

And that will depend on which way the market moved between the opening and closing of your trade, as well has how much it moved.

Thanx for the explanation,eventhough i’m still in the twilight zone,i think its a good idea to learn it using demo account…

my understanding is that aside from paying the spread you’re not “spending” your money till you close out your position…of course that’s only if you lose. That’s why you want to win (win=getting paid, lose=spending your \$)
hope this helps

I believe you are correct there. If I understand it right, the \$133.88 USD I referred to as spent isn’t really spent at the time. But your broker expects it to remain in your account toward your margin requirement. Since you need to leave it there, I always think of this amount as ‘spent’ until the trade is closed out. Your broker handles the math on that for you. The “margin call” number will reflect the amount you committed in that manner.

And yes, Anzsai, trading on a demo account is an excellent idea. Take your time and get used to it. Play with it while you go through the school here at babypips. There are a lot of ideas that seem overwhelming at first, but things will start to click eventually.

hmm…my understanding is what you’re referring to as the “margin call” is actually the “used margin.” This will be returned to you once you close out your trade though (assuming you didn’t lose it all). The amount of money that’s returned depends if you win or lose. If you win it will be more than you put in and if you lose it will be less the loss. But the money you make or lose (spend) is actually the difference between what you bought it at and when you sell it at (or vice versa).

=If you buy 10,000 EUR/USD at 1.3318…

so in the above example, if the price went up to say your TP at 1.3328 then you would make \$10 or conversely if the price went down to say your SL at 1.3308 then you would lose \$10. So if the margin req. is 1% then you would have had \$100 locked up till you closed the trade. If you won then the return amount to your account would be \$110. If you lost this trade only \$90would be returned to your account (discounting spreads for now). This is my understanding…not sure if that’s what you were saying or not…

so to answer the question as far as spending…I think of as officially spending the \$ when it’s closed out…and only if you lose (again not counting spreads). But right, technically you don’t have access to whatever is “used margin” till you close the trade…

Again this is my understanding…can anyone confirm??

sorry anzsai if I am confusing u more…

Greetings brothers in pips,
Any recommendation on good brokers to try?
Coz its like a zillion trillion brokers out there that seems to be offering good service…
One more thing,is it a good idea to be using e-gold as a medium of funding my account?Anyone knows what broker that offers this kind of option?

Oanda is the best I know of. For demo trading and fast execution, at least. I hear lots of good things about 'em.

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.

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

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.

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!

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

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.

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.

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.