beginner questions about forex trading

[suitianshi]

I’m trying to learn forex trade. Though I have done a lot of research and read many guides, I’m still quite confused.

In particular I need help on the following questions.

First let’s say my account currency is USD

Consider the pair EUR/USD, 1.3000/1.3001

• If I buy 1,000 unit of this pair, does that mean my account balance will be deducted by 1300.1 USD and I get 1000EUR? Am I really selling sth and buying sth just like what I do with a bank teller?

• If I sell 1,000 unit of this pair, what will happen then? I will be taken some USD from my account balance? But I don't have any EUR, how can I "sell" it?
  

• If I open a position by buying EUR, do I have to close that position by selling same unit of this pair later?
  

• I am told that with Interactive Brokers, I can easily exchange my usd to cad at the market price with a low fee, as shown in http://blog.plsoucy.com/2013/03/converting-usd-cad-interactive-brokers-howto/. Why? Is this the same thing as "selling a usd/cad pair"? If yes, then why many people are using money transfer service (e.g. transferwise) which costs a lot more?
  

• I have read a guide book saying "actually nothing is sold or bought in the background, the only thing you do is to tell others your intention to buy/sell a currency pair". What does this mean?

[tommor]

When we trade forex we are not actually buying or selling currency. We are placing a bet which way the exchange rate between two currencies will move.

So if you “buy” EUR/USD at 1.3001, you are betting that the exchange rate will rise through 1.3002, 1.3003, 1.3004 etc. The effect if your bet is parallel to the effect on your account if you actually owned some EUR. But remember that you have not bought any EUR, you did not sell any USD to get them and no matter how long you leave the position open or how high the exchange rate goes, you will not receive a bundle of EUR. What you will receive is a payment from your broker in proportion to the amount you placed your EUR/USD bet with.

The payment into your account will be in the same currency you opened it in - if your account is in USD, the payment will be in USD, if its in JPY the payment will be in JPY etc.

[suitianshi]

thx for the answer.

in my no.4 question, the link says we an use IB to convert one currency to another, why? this is same as “trading a currency pair” or it is in fact a completely different use of the broker?

[tommor]

I’m sorry, I don’t use IB or a broker that says anything like this. I have no idea what they are trying to say. You could contact their customer support line.