i posted something like this early but didnt really get an answer. Just wondering what actually happens when i make a trade? How does my money go from my account, to my broker, to being invested in a trade? And how does it do it so fast, like within a second or click of the mouse?
Thx Jibby
Since you need to have money with your broker before you actually trade, we can take out the part about the cash going to them and just deal with what happens when a trade takes place.
Really, the money goes nowhere. In retail forex trading you aren’t actually buying or selling currencies. You are essentially entering into agreements to do currency exchanges in the futures (2 days forward, technically). Your broker rolls your positions forward so that you don’t actually do those exchanges, but that’s the base of the system.
Since you aren’t actually buying or selling anything, but only entering into an agreement to do so (which is the same in futures), your broker doesn’t need to take money out of your account (as would be the case in stocks). There is a margin requirement for your trades, but that doesn’t come out of your account. It stays there.
And of course the whole market is electronic these days, so all the trades happen in a blink.
Like rhody said, the money doesn’t physically move from your account to your broker.
It’s just like using Interac to buy something at a store.
The money doesn’t physically move from your bank account to the store’s bank account at that time. But, an agreement has been created by that electronic transaction, so the amount of your purchase is deducted from your bank balance, and the physical movement of the money takes place later.
Terry
Thanks guys, that cleared up a bit of the “foggyness”
Jibby