Dear Hornet,Originally Posted by ;
to understand the simple mechanics of currency trading you have to understand everything you're doing, when Buying and Selling, will be to make dept and loan at equivalent size on the 2 sides of your balance sheet in your bank.
Buying EURUSD implies, you're getting 100 K in EUR out of the bank (i.e. financing is accounted as a asset to your favour; a PLUS) and you're carrying a dept (Selling) of equivalent size in USD (a dept, a MINUS). The interest for having the loan for a plus on your own account is netted with all the interest paid for the dept for a minus on your account. As both of these amounts of dept and loan are equal, your margin is only a fractional part of these sums you move, in order to serve as security for currency rate fluctuations. This is the reason, why you don't have to place the USD-Equivalent of 100.000 EUR of your money on the table for buying one Lot EUR/USD (i.e Buying 100K EUR against selling exactly the same amount represented in USD). You are getting a dept out of the broker or bank because dimensions in order to buy.
If a currency includes a higer interest amount, the internet interest is going to be booked to your account (i.e. USD/CHF), when the ratio is negative, it will be removed from the own equity. ... Here is the meaning of long (you have something) and brief (you don't have it).
If you do combined transactions i.e. Buy EUR/USD and Buy USD/CHF you're finally Buying (Getting, Having) EUR and Selling (owing, Not Having) USD. The same with Buing USD/CHF.
So you have to check at your equilibrium of the combined transactions to see what you have or don't have at the end of your transactions. This effective equilibrium defines your currency risk in addition to your interest earnings or payings. (See my earlier post)
Greetings
t.