Risk of cross currency trading

codekiddy

Newbie
4 1
Hello,
Let's assume I have an account that is based on euros, ie. I have 10 000€ balance in my forex trader platform. And I want to buy US dollars vs. japanese yen. that is USD/JPY pair.

According to forex definition which says for currency pair that "currencies are exchanged for each other simultaneously", in order to buy dollars (USD/JPY) I need yen right?
But my account is in Euros so upon taking long position to buy USD/JPY my account balance which is in euros will be charged to buy yen first, then those yens will be used to buy dollars? Is that correct?

let's suppose it's not and my Euro account balance is charged directly to buy dollars without purchasing yen first, that is to buy dollars with my euros against the yen.

please explain which one of these two statements is true and why the other statement is false if so?

Also the same case as above, let say I want to buy yen against the dollar instead (vice-versa), then I suppose procedure will be to (automatically)buy dollars first and then these dollars will be used to buy yen for dollars in order for position to be open, right?

If you have read carefully you noticed that upon taking a position there are *TWO* currency conversions to take position, and *TWO* currency conversions to close it, that is there are made 4 currency conversions in total for one single position.
Now let's assume you managed to profit from this trade 10€ and your balance is now supposed to be 10 010€.
well this is absolutely not true, because there is a risk that in mean time while your trade is open, dollar lose it's value vs euro, so when dollars are exchanged back to euros during position closing you may lose some profit.

Any comments about this issue are welcome!
 

codekiddy

Newbie
4 1
I posted this question on several forex forums and it's really funny that out of millions of forex traders nobody knows how to calculate currencies, that's so sad.
no wonder everyone goes broke with forex.

anyway, I somehow managed to get a discussion on this and here is link if you're interested for an answer. link to forum site

I also created forex risk calculator in Excel spreadsheet that can be downloaded from my blog here

enjoy!
 

Forexmospherian

Legendary member
39,928 3,301
I posted this question on several forex forums and it's really funny that out of millions of forex traders nobody knows how to calculate currencies, that's so sad.
no wonder everyone goes broke with forex.

anyway, I somehow managed to get a discussion on this and here is link if you're interested for an answer. link to forum site

I also created forex risk calculator in Excel spreadsheet that can be downloaded from my blog here

enjoy!

Hi Codekiddy

Its very rare that the pure costs of carry out currency trading is the real reason for so many traders going broke in this game.

Yes we all want low spreads and commissions - one reason I actually trade some key pairs intraday rather than some more exotics - but then even if the actual trade cost is extremely low - - lets say 0 4 of a pip including spread and commission - if that pairs only moves say 18 pips in one of its wave movements in 20 minutes and then something like the EJ or GJ move say 29 pips in exactly the same time and move - even if my cost to trade is higher say quadruple - ie 1 6 pip for spread and commission - I would still prefer to trade the higher cost pair - simply because my net result ( net win ) is better -

ie one pair ( say UJ or EU ) move 18 pips - minus cost of trade 0.4 pip - net result 17.6 pip

EJ pair - move 29 pips - minus cost of trade 1.6pips - net result 27.4 pips - nearly 10 pips more and even just on 1 lot per pips a $100 gain to trading the lowest cost pair.

I think the real reason most traders lose in the game is down to the following

1. Not taking long enough to understand all the elements of the game

2. Being totally mislead by the Industry

3. Not having a proper plan along with strong disciplines and strong mindset.

4. Not really understanding the pair or pairs they plan to trade - ie for a start a few thousand hours watching live charts on the pairs move and relating it all to fundamentals , news and gameplay of false sentiment.

5. Accepting loses and keeping them as small as possible

6. Placing stops in profits when possible on lower stake sizes along with always banking part profits and never letting a good winning trade go to a loss.

It takes 5 -7 year plus on top of a formal education to train to become a Doctor / Lawyer / Vet / Mechanical Engineer etc etc - why do traders think it takes just 1 or 2 years part time in this game - I just don't know ;)

Regards


F
 

codekiddy

Newbie
4 1
Its very rare that the pure costs of carry out currency trading is the real reason for so many traders going broke in this game.

I agree, What I said in one post above is rather irony not my real thought :cheesy:

however I couldn't just go over and not add that there are even people posting on online forex articles something like:
"I don't care for details, all I wanna do is make money"
really I wish all the worst to such greedy trader just because of ignorance and lack of interest to learn more. :eek:
 
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