Super Basic Question

[aaron 10]

Hello everybody! I'm new to this forum and new to the forex world. I have two questions I just can't find the answer to:

 

1. My account balance is in dollars, so let's take for example EURUSD, when I'm buying euros I am selling dollars, (dollars from my account) BUT when I am selling euros to buy dollars, from where do I have euros? In my account I only have dollars. Can someone help me?

 

2. It's almost the same thing, I have dollars in my account and I want to trade GBPCHF, so from where or whom am I getting the pounds or francs?

 

Hope that makes sense, just having trouble wrapping my head around this one.

Thank you in advance for helping!

[SIUYA 11]

maybe it helps to think about it this way....

 

as the trade you are doing are swaps....bets based on relative movements, you dont actually need the actual dollars in the account. You simply need enough funds for margin.

 

This is not like shares where there is a fixed amount of shares per company available and there is an actual transfer of ownership.

 

or

it is like betting on a horse. you dont need to own the horse, the race course, the feedbag or to even be there. You simply need to be able to provide the funds to bet on a particular outcome.

[prax 10]

Hello everybody! I'm new to this forum and new to the forex world. I have two questions I just can't find the answer to:

 

1. My account balance is in dollars, so let's take for example EURUSD, when I'm buying euros I am selling dollars, (dollars from my account) BUT when I am selling euros to buy dollars, from where do I have euros? In my account I only have dollars. Can someone help me?

 

2. It's almost the same thing, I have dollars in my account and I want to trade GBPCHF, so from where or whom am I getting the pounds or francs?

 

Hope that makes sense, just having trouble wrapping my head around this one.

Thank you in advance for helping!

this where you need to know about the pair.

as you mention EURUSD are direct pair, the opposite are inderect pair (USDCAD for example), and we also have cross pair.

all pair calculate always taking US dollar into account.

 

Currency pairs that do not involve the USD are referred to as cross rates. Even though the

USD is not represented in the quote, the USD rate is usually used in the quote calculation. An example of a cross rate is the EUR/GBP. Again, the EUR is the base currency and the GBP is the quote currency.

 

Calculating Cross Rate Pip Value

 

Pip stands for "price interest point" and refers to the smallest incremental price move of a currency. Tick size is the smallest possible change in price. The base quote is the current base pair quote. Pip value for cross rates are calculated according to the following formula:

Formula Pip = lot size x tick size x base quote / current rate

Example for 100,000 EUR/GBP contract currently trading at .6750, and EUR/USD currently trading at 1.1840:

1 pip = 100,000 (lot size) x .0001 (tick size) x 1.1840 (EUR/USD base quote) / .6750 (current rate) = USD $17.54

 

Calculating Cross Rate P/L (Profit/Loss)

 

Calculating P/L for cross rates is calculated as follows:

Formula Selling price - Purchase price = P/L

Example for 100,000 EUR/GBP contract initially sold at .6760 then bought (closed) at .6750:

.6760 (selling price) - .6750 (purchase price) = .0010 positive pip difference = 10 pip profit

To further convert the above P/L to USD, use the above "Calculating Cross Rate Pip Value" as follows:

1 pip = 100,000 (lot size) x .0001 (tick size) x 1.1840 (EUR/USD base quote) / .6750 (current rate) = USD $17.54

Therefore: USD $17.54 (pip value) x 10 (pip profit) = USD $170.54 profit

 

now you realize why you pips value with cross pair not fixed at 1 usd per-pips just like eurusd does.

hope it helps, further question are welcome

[shuvo7748 10]

maybe it helps to think about it this way....

 

as the trade you are doing are swaps....bets based on relative movements, you dont actually need the actual dollars in the account. You simply need enough funds for margin.

 

This is not like shares where there is a fixed amount of shares per company available and there is an actual transfer of ownership.

 

or

it is like betting on a horse. you dont need to own the horse, the race course, the feedbag or to even be there. You simply need to be able to provide the funds to bet on a particular outcome.

 

Perfectly explained :thumbs up:

 

It just bets against which currency you are trading. For this you need margin. Not Euro for trading euro.

[Ammeo 10]

As SIUYA said u dont need to interchange the money to trade a pair that doesnt involve USD. All u need is the specific pre-defined margin requirement for the pair u are trading. Exotic pairs have normally more margin requirements than regular pairs like EURUSD or USDJPY.