Trading GBP/USD with GBP denominated account currency

Hi all,

Another new joiner here. I’ve got most of the basics down but like few others who have posted similar questions on the forum, this particular calculation got me struggling to properly grasp the concept of it.

I’ve seen other examples where a traders account currency denomination is in USD and they want to trade EUR/JPY etc, and I can understand it somewhat relating to that question but the example I am trying to get my head around is this:

  • My account currency is denominated in GBP (£), I’m in UK so I’ll be having this on my trading account
  • I am looking at GBP/USD: 1.2494 / 1.2497
  • I see an uptrend on the chart and want to go long with a mini lot @ 1.2497

So my account denominated currency is the base currency as opposed to not being either the base or quote currency.

I’m struggling to understand how this would look on a step by step basis.

  1. I go long with 1 mini lot of GBP = £10,000 - cool, but do I short here on $12,497 or because by account currency denomination is already in GBP, do I just go straight to base currency and put up the margin requirement for GBP/USD (for example if it was 3%, my margin requirement would be £300)
  2. Then, let’s say it went up to 1.2582 / 1.2585, how does it work selling £10,000 against USD and then applying that back to my account currency denomination of GBP again.
  3. I suppose slightly different flavour of question 2. If I got it wrong (I most likely will!) can it went down to 1.2420 / 1.2423, how does it work same as above when it comes to selling £10,000 back.

I understand how to calculate the pip value but does that play in to this scenario?

I suspect I got my head in a bit of a muddle and are not figuring something simple here but I would be grateful if someone can kindly help me understand it. I know this is all worked out on the trading platform but would like to understand how the figures displayed on the trading platform is derived.

Many thanks,

Michael

Hi Michael -

Understand that as private retail currency traders we are not trading in currency at all. When you “buy” GBP/USD, you are actually placing a bet with your broker that the exchange rate of USD to £1 will rise.

Your “bet” is placed in GBP assuming that is the currency of your account because the UK is where your broker offers the bet.

Neither you nor your broker has bought (or sold) anything during the entire transaction.

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Spot on @tommor - Sadly the “education” does the newbies no service - when it pretends there is a real relationship between we Punters and some sort of “Real” market ! :wink:

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Hi tommor,

Many thanks for your reply. It’s much more simpler to think about it in the term you described :slight_smile: