Greetings from WA, i have a question

Hello, i am new here and have been studying the school of pipsology. I have a few stupid question though…

  1. I understand that there are 4 markets, open at different time zones.
    Now according to trading a currency pair such as USD/JPY which market am i entering, the NY market or the Tokyo market? Which currency of the pair refers to the market i am entering a trade in? Is it the currency i am “using” to buy the base of the currency pair?

  2. I understand Oanda credits or charges interest based on the trade, but does Oanda credit me interest in just having money in the account without trading and letting it sit there, without having any positions sit over time?

  3. Lastly, i understand Oanda allows a withdrawal of 125% of the original deposit. Let’s say i put in $1000, and turn it into $3000, and i withdraw $1000, but keep trading with the remaining $2000, for the following months can i always withdraw $1000 from the account or is it a one time withdrawal? Which leaves the rest to a bank wire transfer.

  4. Let’s say i am to use Leverage. Is there a time frame limit to the duration i can have the trade position open for? If it were to fall 100 pips can i just wait it out or will Oanda close the position for me under certain circumstanes, and if so, what are the circumstances.

If you’re a U.S. resident (I assume WA means Washington state), and you trade with Oanda, then the “market” you are trading in — regardless of time of day — is the market being “made” by Oanda in New York.

Everything you do comes down to this: you place bets with Oanda, and Oanda takes the other side of your bets. If you earn a profit, Oanda pays your profit out of their funds. If you take a loss, your loss becomes Oanda’s profit.

You never transact forex trades with any other trader, and you never transact forex trades with any bank or ECN. Oanda transacts business with other traders, and with banks, but that does not involve you or affect you in any way. Oanda is your counterparty from the beginning to the end of each and every trade you place.

You are able to transact business with Oanda only at the prices Oanda offers to you: You may buy at Oanda’s ASK price, anytime you choose; and you may sell at Oanda’s BID price, anytime you choose. Those ASK and BID prices are constantly fluctuating in sync with the worldwide currency market — big banks all around the world. Oanda deals with that worldwide currency market, but you don’t. Plant that fact in your mind.

Oanda might have many banking partners in the worldwide interbank network. But, for the sake of an example, let’s focus on just one. Let’s say that all of the business which Oanda chooses to transact upstream in the interbank market is transacted with Citigroup.

Depending on the time of day that Oanda transmits an order to Citi, that order may land in London, or in New York, or in Tokyo. Like all the banks in the interbank network, Citi operates around the clock, 24/7 — that’s right, these banks are accessible to certain clients on weekends, as well as weekdays — but which Citi trading desk is “open” at any given time depends on time of day.

The worldwide currency market is continuous and seamless. That means that there are no delays, gaps, or discontinuities in price when Citi’s New York desk transfers all their open positions and open orders to the Tokyo desk, or when Tokyo transfers everything to London, or London transfers it all to New York.

Let’s apply all this to your specific question about trading USD/JPY. No matter what time of day you choose to enter a USD/JPY trade, your trade will be transacted with Oanda in New York. And it will remain there, for as long as you choose to keep your trade open. You will not be trading in “the New York market”, or in “the Tokyo market”. You will be trading in “the Oanda market”.

If you choose to go LONG the USD/JPY, you will automatically place Oanda in a SHORT USD/JPY position. Oanda, being a market-maker, may choose to offset the SHORT position you have placed them in, by going LONG USD/JPY with Citi (or one of their other liquidity providers). Or, Oanda may choose NOT to offset that SHORT position, if they believe that you were wrong to go LONG, and the loss they expect you to take will generate a profit for Oanda.

If you have understood all of the above explanation, then you now can answer this question for yourself.

As for “buying” and “selling” currencies, or currency pairs, no such thing exists in the forex market. When you go LONG a currency pair, you are simply placing a bet with your broker that the relative value of the base currency will rise with respect to the cross currency. When you go SHORT a currency pair, you are simply placing a bet with your broker that the relative value of the base currency will decline with respect to the cross currency.

Your account currency (presumably U.S. dollars) is used to fund the required margin for your trade, and everything which occurs in your account is denominated in U.S. dollars. Your dollars are not used to “buy” anything, because no buying is occurring. Furthermore, when you trade using leverage, you are not borrowing money from your broker. In the forex market, clients do not borrow money from brokers, and brokers do not lend money to clients.

I’m not aware that Oanda pays interest on idle balances in retail accounts (although some offshore brokers claim to do so). But, I’m not an Oanda client, so I can’t answer definitively. Read Oanda’s Terms and Conditions, and if that doesn’t answer your questions, talk to Oanda directly about this, and about their withdrawal policies.

Retail forex trades have a “nominal” expiration date, but that date is rolled forward by one day, every day. The result is that the expiration date never arrives, and you can hold a retail forex position indefinitely, provided your account maintains enough equity to fund the required margin, cover any losses incurred, and pay any charges associated with the daily roll-over interest (which you alluded to in your question #2 above).

If your account is adequately funded, you can hold a retail forex position forever.

Yes, you can hold out forever, provided your account can handle the loss without depleting required margin.

Example: You have a $1,000 account balance, you enter a trade which requires $300 in margin, and your trade goes badly against you racking up a $500 loss. You now have $200 in UNUSED MARGIN (sometimes called FREE MARGIN) remaining in your account. If this $200 is consumed by further losses in your position, or by your attempt to use it for margin in an additional trade, or by your attempt to withdraw it, then you will receive a MARGIN CALL from your broker.

A margin call may take either of two forms, depending on the policies of your broker. Either (1) your broker will alert you to your situation, and demand more margin immediately, or (2) your broker will immediately close your position, and notify you afterward.

Barring a margin call, you can hold onto your loser(s) as long as you see fit.

But, I wouldn’t recommend that as a trade-management technique.

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Thank you Clint! Awesome response