First post in the forums, I planned on not posting until I got through school, but I’m stuck on one of the lessons.
Undergrad-Senior Lesson 17.
This is about trading currency pairs where neither currency is in your deposited denomination.
The two sections say…
" If your account denomination is not in the currency pair traded, but the same as the conversion pair’s counter currency…"
and
" If your account denomination is not in the currency pair traded, but the same as the conversion pair’s base currency…"
I understand what they are saying, this would be like having money in USD, but wanting to trade AUS/JPY. What I don’t understand is what do they mean by “the same as the conversion pair’s counter currency” or “same as the conversion’s pair’s base currency”
What is the same? Isn’t the point of these that nothing is the same? And how do I know which formula to use? If neither side of the pair is in my deposit denomination, why would I use one formula versus the other?
The “conversion pair”, as the School lesson uses the term, refers to the bookkeeping step (done automatically by your platform) which converts your P/L – earned or lost in the quote currency (also called counter currency) of the pair you traded – into your account currency.
Example: You have an account denominated in USD. You trade the GBP/JPY pair and earn a profit. Your profit is earned in JPY, and must then be converted into USD in order to settle your account. USD/JPY is the “conversion pair” in this example, and the base currency (USD) in this conversion pair is the same as your account currency.
On the other hand, if you had traded EUR/GBP, your profit would have been earned in GBP. The “conversion pair” in this case would be GBP/USD, in which the quote currency (USD) is the same as your account currency.
