Fx Currency Trading
what does it mean to borrow a currency in the FX market? Is it synonymous to ’sell’?
In the FX, it is said that you can buy or sell a currency pair.
If you think about the USD/AUD, you must be buying one and selling the other. In this case, which one is which? are you exchanging the USD for AUD or AUD for USD? Also, what does it mean when finance books say that you ‘borrow a currency to buy a currency’? Aren’t you just trading as in buying and selling?
While it’s quite a complicated system, I’ll try to answer in the simplest way possible.
When you trade in the Forex market, you are leveraging on your capital. Just as you can ‘buy’ a currency, which you later ’sell’ (and hopefully make a profit), you only do this when you see that a currency is trending upwards. It is however possible to make money on a currency which is trending downwards, and you do this by ’selling’ the currency first, before you ‘buy’ it when the currency has lost value. In order to do this, you need to leverage (ie borrow) from your broker. To make this process viable for the broker, they often charge a higher spread (commission) on this type of trade. You pay back what you’ve ‘borrowed’ when you exit the trade. Whether you win or lose the trade, your broker will get their money back through the spread they charge you.
FX Currency Trading – Free Forex – Forex Trading Systems – Learn Forex
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