Initial Deposit Issue

nomindtrader

Newbie
5 1
hi all,

I am very new to trading. I reside in UK and thus want to open an account in GBP
but something is puzzling me.
The profits of a trade are usually calculated in the quote currency which is the denominator of the pair (if i have got the lingo right !!). So e.g. if i trade 1 mini or micro lot of USD/JPN I would be paying GBP to buy (long) USD and going short an equal proportion of JPN. Thus, GBP is being converted into USD's to pay for the trade.
If i make a profit/loss, they are calculated in JPN which would then be converted back to GBP when i close the trade (depending on the day's exchange rate) and my P&L will depict that accordingly.

the trade can be summed up as :

Thus,theoretically, i am loosing money 4 ways before i start i.e. when GBP is converted to US (the exchange rate) and when JPN is converted back to GBP to calculate the p or L(the exchange rate) and the bid-ask spread to the broker (x2 - to enter and leave the trade) as follows:

USD/JPN = USD/GBP * GBP/JPN + broker (bid-ask) X2 - although it doesnt happen this way but in my mind its featuring this way.

Here's the question: Do I open a GBP based account or do i convert all GBP to USD and have a USD based account ? That way i take a 1 off hit and minimising each trade risk linked to fluctuating USD GBP rate.

Kindly help?

Sorry If i have sounded stupid but hey i need to start somewhere.
 

D70

Established member
839 195
Go onto a broker thread (preferably the one you are opening account with) and directly ask them. Otherwise you'll just get peoples 'best guess'.
 

nomindtrader

Newbie
5 1
Go onto a broker thread (preferably the one you are opening account with) and directly ask them. Otherwise you'll just get peoples 'best guess'.

Thanks for your response D70...I will do as directed...apologies for being pedantic but i thought most people would have nailed this issue, which i raise, by now. So according to my understanding people who trade forex would know how to approach this problem.
 

justtrader

Well-known member
470 71
There is no conversion taking place. The currency you are buying or selling is bought as a set item,
compare it to buying gold or oil , which is priced in Dollars. When you buy gold or oil you buy it with your pounds, you do not convert it to dollars and then buy it.

If you are running a micro account do a 0.01 trade to study it.
 

nomindtrader

Newbie
5 1
There is no conversion taking place. The currency you are buying or selling is bought as a set item,
compare it to buying gold or oil , which is priced in Dollars. When you buy gold or oil you buy it with your pounds, you do not convert it to dollars and then buy it.

If you are running a micro account do a 0.01 trade to study it.

Yes i might try it out...yes i agree with you that if i buy Oil so I will pay GBP, if that is my base currency, but I will only pay GBP's which are EXACTLY equal to the DOLLAR price of the oil - not a penny more or less. If this assumption doesn't hold then people would start buying Oil in USD's and sell it in GBP or vice-versa and make a profit without doing anything.
 
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bigboyfx

Junior member
31 1
You are supposed to submit a support ticket with the broker you have in mind. I am sure you won't have any trouble.
 
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