Exchange rate clarification

If you have an account in USD and you want to SELL 1000 EURJPY @ 123.4 and BUY @ 123.3.

How brokers exchange your initial USD money into 1000 EURJPY when you make the SELL and back to USD when you make the BUY? What exchange rates they apply?

So, we want to SELL 1000 EUR for 123 400 JPY, but our account is in USD. The broker needs to exchange first USD into JPY? So basically we pay the USDJPY spread and EURJPY spread?

When you take a position in the retail spot currency market (that’s [I]our[/I] market), you don’t buy or sell anything. And, similarly, when you close that position, you don’t buy or sell anything, either. You don’t buy from your broker, and you don’t buy from some other trader who wants to “sell” to you.

[B]There is no buying or selling of currencies, or currency pairs, in the retail forex market.[/B]

Instead, you bet on the change in price over time between two currencies.

That’s what speculating is — it’s betting on future price changes.

If you take a LONG position (what most traders call “buying”), you are simply betting that the base currency will gain in value relative to the quote currency. If this happens, as you expect, you earn a profit. Otherwise, you break even, or take a loss.

Your bet is placed in the currency in which your account is denominated — that is, in the currency you deposited to fund your account. And your profits and losses are accounted for in your account currency, as well.

[B]Your account currency is never converted into any other currency.[/B]

Let’s walk through the example you gave in your post.

Your account is denominated in USD. You take a SHORT position (you called it “selling”) in EUR/JPY, and then you close that position (you called it “buying”) at a price 10 pips lower than your entry price. That 10-pip price difference in EUR/JPY has a certain value in USD (which you can easily determine), and that USD-value is your profit in this trade.

The determination of this “pip value” is a bookkeeping step carried out by your trading platform, and does not involve the actual conversion of one currency into another currency.

Your understanding of this market will leap ahead dramatically, if you will simply come to grips with the fact that there is no buying or selling of anything in the retail forex market.

Your bet on the change in value (price) of the EUR/JPY (or any other pair) is no different from a bet on the outcome of a horse-race. When you bet on a horse in a horse-race, [B]you don’t have to buy the horse.[/B]

And when you bet on the EUR/JPY, [B]you don’t have to “buy” the euro[/B] (or the yen).

Welcome to this forum, by the way.


Thanks for the detailed response.