Hi,
I have a quick question. Say my base currency is GBP, and I trade the GBP/EUR.
How can I buy GBP, if I own no Euros?
Is it possible?
You’re not actually buying anything, no GBP bank-notes will be transferred into your account at your broker, and you won’t have to convert anything into EUR to pay the broker.
You are actually taking a bet with the broker that the exchange rate between the two currencies will go up. This might well be caused by banks actually buying/borrowing GBP but that’s their business, not yours - result is, rate goes up.
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Hi @FlyPippin
As @tommor explained, when you trade forex, you are not physically converting one currency for another. You are speculating on the exchange rate. Furthermore, the exchange rate between the British pound and the euro is always written as EUR/GBP, and never the other way around.
If you believe the British pound will rise in value relative to the euro and want to speculate on that rise, then you could sell EUR/GBP at the current rate to establish a short position. You would profit if the euro falls in value relative to the British pound, but lose if the EUR/GBP rises instead.
Since you don’t have to exchange currencies physically in order to speculate on their value, you can even trade cross rates that don’t involve the currency you hold. With your GBP-denominated trading account, you could buy or sell the EUR/USD rate depending on whether you believe the euro or the dollar will rise in value.
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