Can anyone explain to me if it’s possible to trade a currency pair when both pairs are foreign? Such as a US citizen trading GBP/JPY. What happens here?
Your dollars get converted into one of the other currencies, which is then bought or sold to complete the trade.
Yes, this is perfectly possible.
If your trading account is in USD and you go long on the GBP/JPY, you in fact first buy GBP/USD and than buy JPY’s with the GBP’s you purchased.
When you sell your position, you sell your JPY’s back for GBP’s and than you sell the GBP’s for USD’s
Hope this helps.
And the best part is that your broker takes care of all of it behind the scenes ;). I have been trading the GBP/JPY pair for about a month now and I love it.
Unfortunatly you could loose money after the trade if finished. Right?
I mean couldn’t you gain 20 pips in the GBP/JPY trade but ultimately loose 10 pips when trading back into USD. Right?
No, if you make 20 pips, then you just close/exit the trade, its done, finished, until you open another trade. Pips are made based on price movement, so you wouldn’t lose ten pips unless the currecy pair’s price went down if you bought it(of course the spread is pertineer 10 pips). By the way I don’t mean to steal the thread from you or anything, but does anyone else trade crosses rather than the majors? Just curious if so could you name them. Thanks best eh!
holy crap hobbit that’s alot of pairs. I still just stick to two, eventually I’ll trade all the AUD/EUR/JPY/CHF/GBP pairs but that valley is quite low. I’ll just add them gradually with demo, then add them one by one on live. Then again my style is much different from yours. Thanks for the response eh, Who else is out there? best eh!
Is there any downside to trading the GBP/JPY pair? I know with such a volatile pair there can be a lot of risk, but there can also be large reward!
Other than the large spread and the volatility, is there any other concerns? Is there ever a risk of the pair not being liquid?
I just think that the stops you have need to be larger, so you end up risking more that way too. But, if you have good money management, you can minimize the risk. One thing though is that it can miss your stop depending on where you put it, so you might end up losing more than you should have. That is of course if you trade around the news or just SIAFI. best eh!
It was stated a couple of times earlier in this thread that when you trade a cross from a USD account your $$ are converted in to GBP (as per the GBP/JPY example), then the transaction is made. That’s not right.
When you do any forex trade at all, you borrow the currency that you will be shorting, convert it in to the currency you will be long, and deposit the latter. The borrowing and the depositing is where your interest rate differentials and carry come in to play.
So in the case of GBP/JPY, if you were going long 1000 at 230 you would borrow 230,000 JPY, convert it in to 1000 GBP, and deposit the GBP. Now assume that GBP/JPY rises to 231. That means your position is worth 231,000 JPY. Since you only need to repay 230,000, you have a profit of 1000 JPY or about 4.3 GBP. That profit will get converted in to USD to be credited to your account.
That 1000JPY/4.3GBP profit, of course, will get converted at current rates, so the movement in the market will definitely impact your net profit at the end of the day. Someone earlier said that the pip value would be fixed. That’s incorrect. It varies with the GBP/USD and USD/JPY rates. As someone holding a GBP/JPY long, you would want the cross to rise thanks to a rising value of GBP because that would actually increase your profits.
No matter what, though, if your cross trade produces a profit, the conversion back to USD will never result in a loss. It will just impact the size of the profit.
Hope that clears things up.