Okay, I’m betting this is a really ignorant question, but here it is. Trading Forex is all about selling one currency to buy another. So how does that work with cross pairs? For instance, if I want to sell euros to buy yen, my home currency is the good old buck. So do I first have to sell some dollars to buy some euros before I can do the cross? If so, don’t I have to worry about that trade going against me while I’m trying to make money on the other? I don’t remember reading anything about this, but how do I get the Euros otherwise? Could someone explain that to me please? I have the feeling I missed something very basic and important somewhere along the line and I’m now looking really stupid.
I now grit my teeth as I tap the “Create Topic” button.
With the invention of currency crosses, individuals can now bypass the process of converting their currencies into US dollars and simply convert it directly into their desired currency. Some examples of crosses include: GBP/JPY, EUR/JPY, EUR/CHF, and EUR/GBP. -BabyPips
EUR/JPY is created by the pairs EUR/USD and USD/JPY and the formula is A/B X B/C = CB
Right, I get that part. But before I can do the cross, aren’t I technically using my US dollars to purchase euros which I will then use to purchase yen? And isn’t that a separate trade that I could end up gaining or losing on?
Apparently I have not been clear. Let me try again.
I’m not talking about the actual cross trade. I understand that I can sell euros and by Yen without having to first convert them into USD
My question concerns what happens before that.
My brokerage account is going to be in USD. If I want to trade the EUR/JPY cross, I don’t have any Euros in my brokerage account to sell, only dollars. Therefore, in order to enter trade, do I not have to have Euros to sell? That implies a preliminary EUR/ESD trade, does it not?
Does this therefore mean that my EUR/JPY cross takes place behind the scenes as a two-legged EUR/USD and USD/JPY trade anyway? I’m just trying to understand the mechanics behind this
The situation is clearer in the UK where I am spreadbetting on forex pairs. So what I call my “trade” is more literally a bet that the pair’s “price” will go higher/lower. My bet is with the spreadbetting firm and as they are in the UK and so am I, the whole transaction is in GBP. Neither party ever has any capital denominated in EUR (or JPY).
But most forex “traders” who use a broker are actually placing bets like me, they’re not buying or selling, they never deal in any currency they’re “trading”, so no exchange rate as such is important.
'Course, a lot of traders like to look down on me and other spreadbetters, thinking they are real traders and I’m a gambler…
It’s important to understand there is a difference between physically exchanging euros for Japanese yen (as a foreign traveler or international business does) and speculating on the EUR/JPY rate.
When speculating on the rate, you do not physically exchange one currency for another, because doing so would add unnecessary expenses to your trading costs and eat into potential profits.
Forex brokers let you trade any currency pair they offer regardless of the currency denomination of your trading account with them.
For example, suppose you have a US dollar-denominated trading account with FOREX.com and want to trade EUR/JPY.
You buy one standard lot (100,000 units) of EUR/JPY at 129.15[0]. That means you bought 100,000 euros at a price of 12,915,000 Japanese yen.
Later you close your trade by selling EUR/JPY at 129.21[0]. That means you sold 100,000 euros at a price of 12,921,000 Japanese yen.
The difference between the prices you bought and sold is 6,000 Japanese yen which is your profit. FOREX.com will display this profit in terms of your account currency, which is US dollars, based on the current USD/JPY rate.
For the purpose of this example, let’s assume USD/JPY is trading at 111.30. That means your 6,000 Japanese yen profit will appear as about $53.91 in the P/L for your trade.
The fact that you are not physically exchanging currencies in order to speculate on the rates also explains why you can short GBP/USD (sell the rate to seek a profit from a price drop) in a US dollar-denominated account, even though you do not physically hold any British pounds.
We are all gambler. When i become a permanent RICH gambler one day, who cares how other perceive us?
Every position we enter is a bet. Taking a calculated risk, base on methodologies we had learned over years of deliberate practice. There will always be a percentage of loss rate. Money management is paramount and determine whether we ultimately triumph or not.
Ahhhh, the light dawns. We talk so much about buying and selling that I lost sight of the fact that I don’t actually buy 100000 actual units of currency what I trade a standard lot.
But the other part of my question is, regardless of whether or not I’m actually buying the currency, the fact Still Remains that my account is in USD. If I trade a cross & the dollar loses value against both of the currencies in that cross, don’t I lose anyway regardless of what actually happens in the actual trade?
ahhhh, I don’t really see us all as ‘gamblers’ lol i mean as long as you’re making an educated guess behind your trades then that’s better than just looking at the chart for a few seconds and saying ‘oh its going to go down because that’s how it looks or because I just have a feeling’…now that’s real gambling to me, just basing your decision on how you feel at the time lol
That’s right. There are really two sorts of gamblers in the world, but the English language only has one name for both.
The “bad” sort of gambler is the one who plays a game in which his skills and knowledge can have no effect on the outcome - like roulette and lotteries.
The “good” sort of gambler is everyone else, whether they understand they are gamblers or not, whether they understand they are players in a game of probabilities or not. By everyone I mean every other person on the planet regardless of their field of endeavour.
