I’ve been using MT4 demo account and I’ve been making a spreadsheet for myself in Excel to check all their figures. MT4 doesn’t show quite a few things and I like to be a perfectionist, at least before I start I want to be sure I understand it all COMPLETELY.
So I’m going to ask my question with an example because I think it will be easier to explain.
My ACCOUNT currency is AUD.
I buy, or go long, 1 lot of EUR/USD. So EUR is the BASE currency and USD is the COUNTER.
So…
- 1 lot of BASE currency is divided by my leverage (100) and converted back to my ACCOUNT currency. No money changes hands here, it’s used for the margin.
- The BASE currency is converted to the COUNTER currency using the ask price to calculate how much COUNTER currency I need to borrow, let’s call it x(USD).
- x(USD) is borrowed, and with it 1 lot of BASE currency is purchased. This money would be lent to earn interest. I would also pay interest on the COUNTER currency that was borrowed.
Now we get to the tricky parts. Let’s say I made a profit…Which of these is correct?
4a. My BASE currency (1 lot still) is converted to the COUNTER currency using the bid price. My loan is paid and the remainder is converted back to my ACCOUNT currency. This however means I pay a spread TWICE on my profit.
4b. Only the amount that is required to pay my loan back is converted back to COUNTER currency. The rest is converted to my ACCOUNT currency. This way only one spread is paid on my profit.
Now I’m hoping 4b is how it works and MT4 and my broker is acting in my best interest. I haven’t been able to find anything written on this topic so far.
There’s a similar problem when losing money but I’ll just stick to this question for now. The answer here will likely answer the other too, either they are helping you keep costs down or they aren’t.