I’ve been thru the school section, I have setup a demo account and did some trading. I have lost and I have won but there is still one thing I do not understand completely. I feel kind of stupid asking, but here I go.
If I’m trading eur/usd I understand I’m buying euros and selling dollars. If price goes up, I make money. Life is good.
However, when I go short, that is, selling euros and buying dollars, right? So, how can I be selling euros If all I have is dollars?
What your account is denominated in is used as collateral for the transaction, regardless of the currency being bought or sold.
For retail traders, there is never any physical delivery of this transaction, it’s all virtual and settled net. The cash in your account is not used to actually purchase the currency, it is only used as collateral for the trade.