Trading from one currency to another to another

Beginner Questions
1

I’ve been poking around at some forex brokers online, as well as checking out Metatrader4 since that seems to be the go-to application for most sites. However, something has been confusing me…

Say I start with USD. First I trade that USD for GBP. I then want to trade that GBP for JPY. Once I have JPY, I finally trade it for USD, leaving me with USD in my account (and hopefully a profit).

However, everything I’ve seen implies that when I buy a currency pair–say, USDGBP–the only option to close the trade is to then sell it back. If I were to open the three buy/sell orders to theoretically trade in a complete loop, instead of ending with USD, it’s almost as if I have simply picked up three entirely unrelated stocks.

To put it another way, imagine if I went to a physical bank and traded my dollars for pounds. Then, with those pounds in hand, I asked to trade it for yen. Then once I had yen, I asked to trade that for dollars.

Instead, what I’ve seen when testing demo accounts with Metatrader4 feels more like I’m bidding on if a currency pair will rise or fall in value, and less like I’m actually trading one currency for another.

Is trading one currency for another in the way I described something that’s possible with online forex brokers? If it is, how would I go about doing so, and/or finding brokers that allow it? Am I just overlooking something obvious (or perhaps even running in to a limitation of Metatrader4 itself)?

(Note: I’m specifically wondering if this is doable, not if it is profitable. I’m savvy enough with numbers to figure out the latter; it’s the former that’s driving me nuts!)

2

Not sure of I understand completely, but the example you gave with the bank and physical cash is basically the same as you have trading. You first exchanged USD for GBP so you would trade GBPUSD, then you exchanged GBP for JPY so you would trade the GBPJPY and then JPY for USD so you would trade USDJPY.

3

Maybe I’m doing something wrong then?

In every demo account and platform I’ve dealt with, any trade I attempt leaves me with an open position. For example, if I buy EURUSD, sell EURGBP, and sell GBPUSD, I end up with something like this: i.imgur.com/28xiTQO.png

Unless I’m misunderstanding, each one of those is considered an open position, and I have to close all three of them before my account is stable again. This is not what I want.

What I’m trying to do is exchange USD for EUR, then take [I]that[/I] EUR and exchange it for GBP, then finally take [I]that[/I] GBP and exchange it for USD.

In other words, after performing the appropriate buy/sell actions, all I’ve done is taken stock in EURUSD, EURGBP, and GBPUSD, all of which I then still have to sell/buy back; what I want after performing three trades is to end with USD, only USD, nothing but USD.

For another example, say–for whatever reason–all three currencies where currently trading exactly 1:1. And say I start with a balance of 5000 USD.

I decide to buy 100 EURUSD, so I now have a balance of 4900 USD and 100 EUR.

I then decide to sell 100 EURGBP, so I now have a balance of 4900 USD and 100 GBP.

I then finally sell 100 GBPUSD, and end with a balance 5000 USD.

At this point I should have [I]no open positions whatsoever[/I]; I’ve traded from one currency to another to the next and finally back to the start, which means I should have only USD, and if the rate the currencies are trading at suddenly varies wildly, I shouldn’t care because I have nothing but straight up USD in my account.

Yet with the way these trading platforms seem to work… that just doesn’t seem possible. In the above example, unless I am doing something completely wrong, it seems that when I buy 100 EURUSD, I don’t have a balance of 4900 USD and 100 EUR, but rather a balance of 4900 USD and 100 EURUSD; I can’t use the EUR I bought to trade a different EUR??? currency pair; the [I]only[/I] option I have is selling it back as EURUSD.

Sorry for the long explanation, but this has been driving me insane. I feel like I have to be missing something obvious, because despite having found several answers that imply that it’s incredibly simple to do, I’ve found it near impossible to find how it’s actually done.

4

Welcome to the forum, DracoAdvigilat

I understand what you mean about wanting to be able to exchange USD for EUR, then EUR to GBP, and finally GBP for USD to be flat.

However, it’s important to note that when you trade forex on margin for speculation purposes (as opposed to physically exchanging one currency for another), then your money never actually converts from your original currency into a different currency.

That means, if you have a US dollar-denominated trading account, then your funds in the account are always in USD. You are simply speculating on the exchange rates. If your trades make money, then you will have more USD in your account. If your trades lose money, then you have have less USD in your account.

In fact, with your USD account, you can place a trade on GBP/JPY even though neither of the two currencies in that pair are USD. That’s because your are simply speculating on the exchange rate, not physically exchanging your US dollars for another currency.

Here’s an earlier post that you may find useful: 301 Moved Permanently

5

Jason, thank you for finally explaining it in a way that makes sense! :slight_smile:

I suppose that leaves me with a question that I probably already know the answer to: are there any environments where it’s reasonably possible to do what I described? I’m coming from a background in cryptocurrency trading where trading from one to another like that was considered the norm, so it struck me as surprising that I couldn’t find an equivalent solution in the world of forex.

6

Not trading forex online (at least I have never come across it). As Jason said, you never exchange cash and you only speculate on price movements which means what you described is something not needed (again, from my experience as I have never met a trader who desired what you tried to accomplish). I think your best bet is to do it as you mentioned with real cash at the bank where you can make this triple exchange and are left with only one currency.

7

In your bank example you are still trading pairs, using your example:
You give the bank your $ (you are opening a $/¥ trade), bank gives you ¥ (closing that trade).
You then give bank ¥ (opening ¥/£ trade), bank gives you £ (closing that trade)
etc

When you walked into the bank, one price for each pair would have been in force, by the time you completed your transactions the price may have moved in your favour or against you, just as in forex trading but with wider spreads generally.

Hope that helps