Hi im totally a newb in forex. had been reading the theories for the past 2 days… ive tried the demo account and encounter this fact that i couldnt explain myself. How it is possible for us to “Sell” a currency for the other currency without us having the currency? I have USD in my account, exactly how do we sell EURO for USD without having the EURO at all?
also, the software im using is MetaTrader from instaforex. How to see the reciprocal charts? Its preset is EUR vs USD … how to set it to USD vs EURO?
at the top of the page is a tab that says “school” click on that and it will explain everthing for you
Here’s the simplest way to understand this transaction.
Your account is in dollars. You want to sell the EUR/USD pair, which means selling euros and buying dollars. But, you are literally “short” of euros (you don’t have any). So, how can you sell them?
[B]Your broker lends you the euros, converts them to dollars, and holds those dollars on your behalf. [/B]
Your broker charges you interest on the euros he has lent to you, and he pays you interest on the dollars you have purchased with those euros. But, these interest debits and credits occur ONLY on currency positions which are open at the “settlement time” each day — usually 5pm New York time, if your account is with a U.S. broker. In other words, if you sell the EUR/USD after your broker’s settlement time, and close your EUR/USD position before the next day’s settlement time, there is no interest charged or paid on your transaction.
[B]In effect, you borrowed those euros for free. Where else can you get a deal like that?[/B]