Beginner question on Forex

Hi All,

Just started learning about Forex. The School of Pipsology is great !! 1 question though. When trading on Forex, can we actually withdraw the exchanged currency ?
For instance, if I sell AUD/USD pair that means (if i understand correctly) I will sell AUD and buy USD. Would I be able to withdraw this USD and spent it ?

or all the trades are speculative only ?

[B]hewei,[/B]

The short answers to your questions are as follows:

No, you cannot withdraw the portion of a currency pair that you have “bought”. I will explain why “bought” is in quotes, in a moment.

Yes, your transaction is speculative: you are anticipating a change in the exchange rate between two currencies, and you are taking a speculative position in that pair of currencies with the intention of making a profit.

When you take a position in the spot currency market, you don’t actually buy or sell anything. Instead, you take a LONG or SHORT position in a PAIR of currencies. This position can be divided into its component parts: a LONG position in one currency, and a SHORT position in the other.

So, for example, when you “buy” the EUR/USD, you are actually taking a LONG position in the EUR/USD, and this position consists of a LONG position in the EUR and a SHORT position in the USD. Euros will not be credited to your account, and dollars will not be debited to your account. So, there will be no euros for you to withdraw.

Forex traders commonly refer to “buying” and “selling”, just as you did in your question. But, we know that this terminology is a sort of careless, short-hand description of the actual transaction. You’ll never get people to stop using this careless language; so, just accept it as forex jargon. In forex trading, “buying” and “selling” don’t mean what “buying” and “selling” usually mean.

thanks, it helped me too

I want to know when the ending of a LONG or SHORT position in a PAIR of currencies, can i withdraw any debit? please explain more detail thanks

I believe that you are still thinking in terms of “buying” and “selling” currencies, as if the spot forex market were a currency-exchange kiosk at the airport.

When you open a position in the spot forex market, you are actually entering into a very short-term (2 day) “futures contract”. It’s a special kind of “futures contract”, because the contract settlement date never arrives. Every day, it is extended by one day. So, your position (your “futures contract”) can remain open indefinitely.

This “futures contract” you have entered into is not about “buying” and “receiving” and “paying for” some fixed amount of currency. It’s about the change in the exchange rate between two currencies, multiplied by the size of the position you entered. That CHANGE times POSITION SIZE is settled in the currency in which your account is denominated.

If the change is in your favor, you have made a profit; and that profit is credited to your account. This is money that you can withdraw from your account.

Here’s an example:

Let’s say that you go LONG one mini-lot of EUR/USD at 1.3900. In forex jargon, we might say that you “bought” the EUR/USD. And you might think of this in terms of “buying” 10,000 euros, and “paying” for them with 13,900 dollars. But, you now know that you will not “receive” 10,000 euros, and you will not “pay” 13,900 dollars.

Now, let’s say that some time later, you close your LONG position at a price of 1.4000. Again, in forex jargon, we might say that you “sold” the EUR/USD. And you might think of this in terms of “selling” 10,000 euros, and “being paid” for them with 14,000 dollars. But, the 10,000 euros and 14,000 dollars do not actually change hands.

What changes hands is the [B]difference[/B] between the 13,900 dollars [B]you didn’t actually “pay”[/B] when you opened your position, and the 14,000 dollars [B]you weren’t actually “paid”[/B] when you closed your position. In other words, $100 profit changes hands, from your broker to you. That $100 goes into your account. And, yes, you can withdraw it and spend it.

Hi Clint,

Thanks for taking the time to answer the questions ! :slight_smile:

Thanks for the replies

If it helped, I’m glad. — Ask questions any time.

So if I read through this, I see that the typical Forex account is tied to a single base currency (you buy in with USD) and then all trades pay out into the base currency. Is there no way to have two base currency?

I would have started a separate thread for my point/question, but this seems pretty similar.

It seems that it should be possible to do currency exchange via forex, even if it is not the conventional use of forex. If you’re buying/selling (or long/shorting) your EUR/USD day in day out, why would you then, on your European summer vacation need to withdraw your money as USD and then further convert to EUR at some horrid fee/rate…

I transfer money between EUR/USD bank accounts monthly and I get bit on those transfers. I was hoping that forex could offer another method to transfer money and also be a bit of fun. Is it really not a potential solution?

Hello, braincandy

As far as I know, every broker requires that one (and only one) currency is designated as the Account Currency (or Base Currency, as some brokers refer to it).

You will often hear the term “denominated” in this context: Your account is denominated in USD (or EUR, or whatever).

With your broker’s prior agreement, you can deposit any currency into your account, and it will be converted to your Account Currency. And, again with your broker’s prior agreement, you can withdraw money from your account in any currency you specify; your broker will convert funds from your Account Currency into the currency of your choice, and then transfer those funds according to your instructions.

Be sure that you understand certain things before making these transactions: what will the exchange rate be?; how long will the transaction take?; will a fee be charged by the bank or credit card company to which the funds are transferred?.

Deals of this sort, made by prior agreement with your broker, are not standard spot forex transactions, and will not be based on the same currency exchange rates that you see in your trading platform.

Call your broker, and discuss the transactions you would like to make.

Below are the Terms and Conditions specified by FXCM-UK regarding Account (Base) Currency, and deposits/withdrawals in currencies other than the Account (Base) Currency.

Notice that you can even move funds to and from a third party, with your broker’s prior agreement. (Third party transactions are generally suspect, because they can be easily used for money-laundering.)