Forex Commentary

Trying to understand the very fundamentals of a trade:
1) what am I buying
2) whats the balance of my trading account after a trade.
Only answer if you are a FOREX trader – experts only please.

Is it the case that
a) If I have an FOREX account with USD and I buy AUD, I then have an account with AUD dollars in it?
(a sub question of this is, can I then go on to buy another currency using AUD).
Some time later the market moves, and I buy USD using AUD. I realise a profit/loss based on my new USD balance

OR is it
b) If I have an account with USD and I buy AUD, I then have an account balance with USD:AUD at whatever rate.
Sometime later the market moves and I sell my USD:AUD at a new rate, making a profit/loss.
(A sub question of this is, what currency is the profit/loss in – USD or AUD)

Please do not include in your answer things such as margins, spreads, strategies etc. I can learn about those later, I just want the very basics.

Potentially different companys offer different methods so if you are comfortable doing so, in your answer please specify the company that your are trading with.

Cheers

Sam

A Forex trading account works basically like a stock trading account. If you deposit USD into your account, and buy a certain amount of AUD/USD, it’s still a USD account, but you’re holding AUD/USD as a position.

Your account balance, or equity, will fluctuate up or down (in USD) depending on whether the position moves in your favor, or against you.

I’ll mention margin just briefly, because it’s the most important aspect of Forex trading. If your account allows 100:1 margin, that basically means that you can enter a position that’s 100 times larger than what you’d be able to enter if you had no margin. And therefore, you can gain or lose money 100 times faster.

I highly recommend InterbankFX.com. They’re one of the most reputable Forex brokers in the US. I also recommend going to your local bookstore and reading everything you can about stock and currency trading.