3 Questions about forex

[huab1992]

If I buy euro:yuan, and from that moment, the yuan continues to decline until the collapse ,for a year. If I sell the euro, what will I benefit from the large amount of the yuan that I will own? -and that is subject to more greater collapse

,If the currency pairs do not have fluctuations, either steadiness or a permanent sharp decline from one side, will there be profits in forex, or profits in forex only obtained by the successive fluctuations of prices in currency pairs and buying and selling a lot in one day for them?

, In which currency the profit I gain in forex will be in cash, if I trade sterling pound: euro, can I take the profit in dollar u.s?

 

[Tradex]

If I buy euro:yuan, and from that moment, the yuan continues to decline until the collapse ,for a year. If I sell the euro, what will I benefit from the large amount of the yuan that I will own? -and that is subject to more greater collapse

Let's say you live in China and Forex trading is allowed.
Let's also suppose 1 Euro = 10 Yuans (this is just an example).

You sell 1 million Yuans to buy 100,000 euros.
A year later 1 Euro = 20 Yuans (the Yuan lost some of its value against the Euro, again just an exemple).

Now you sell your 100,00 euros and get 2,000,000 yuans, so you earned 1,000,000 yuans in one year (you had 1 million yuans at the beginning of the year but now you have 2 million yuans).

That's a lot of Wonton soup.
Or you could use that 1 Million Yuans profit to buy an apartment in Shanghai or Beijing.

 

[tomorton]

The thing to keep in focus is that we are private retail traders. We are not physically buying money or selling money. The big banks do that.

A clearer image is that we are placing bets on the exchange rate between the two currencies. The bet is placed in the currency of the jurisdiction where your account is based. So if you're in the US, and you wish to "buy" EUR and "sell" CNY, you make a bet with your broker that if the EUR/CNY exchange rate rises they will pay you money (in US dollars) per pip price rise in proportion to the size of your bet. And if the exchange rate goes down you will pay them money in the same proportion.

But at no time will your broker use dollars from your account to buy or sell any currency from or to a bank.

 

[MarkBrown]

If I buy euro:yuan, and from that moment, the yuan continues to decline until the collapse ,for a year. If I sell the euro, what will I benefit from the large amount of the yuan that I will own? -and that is subject to more greater collapse

are you like a gov official and know something, think i will turn you in and they will come in one of those organ taking vans and strip you down to bones, while i short the shit out of the yuan.

 

[Ahmed Solaiman]

The thing to keep in focus is that we are private retail traders. We are not physically buying money or selling money. The big banks do that.

A clearer image is that we are placing bets on the exchange rate between the two currencies. The bet is placed in the currency of the jurisdiction where your account is based. So if you're in the US, and you wish to "buy" EUR and "sell" CNY, you make a bet with your broker that if the EUR/CNY exchange rate rises they will pay you money (in US dollars) per pip price rise in proportion to the size of your bet. And if the exchange rate goes down you will pay them money in the same proportion.

But at no time will your broker use dollars from your account to buy or sell any currency from or to a bank.

best reply with good information , thanks for your nice post.

 

[tomorton]

best reply with good information , thanks for your nice post.

You're welcome.

Unfortunately, the industry likes to give the appearance that we are buying and selling assets, in this case currency.

They do this partly because buying and selling is an easier more familiar concept for most people than betting, but also because they know that many of the public who would otherwise be valuable clients have reservations concerning gambling. They also know many US politicians and legislators in particular are very opposed to gambling. Naturally, trainers and educators often go along with this, there's no point alienating much of your audience from Day 1.

 

[Tradex]

But at no time will your broker use dollars from your account to buy or sell any currency from or to a bank.

If the sum of all retail trades is a short (long) position, then your FX broker must hedge with a short (long) position in the Interbank market, at least theoretically.

In any case you did not answer OP's questions.

 

[Tradex]

i will turn you in and they will come in one of those organ taking vans and strip you down to bones, while i short the shit out of the yuan.

What a rather disturbing image, you my friend should write horror scripts for Steven Spielberg or something.

 

[tomorton]

If the sum of all retail trades is a short (long) position, then your FX broker must hedge with a short (long) position in the Interbank market, at least theoretically.

In any case you did not answer OP's questions.

I understand brokers need to hedge the risk on their aggregated positions but I did not know they went into the currency market to do this. However, it makes no difference to the trader.

My explanation could have been clumsy, but some new traders firmly believe that when they take a long position in EUR/CNY, they have actually ordered the broker to purchase EUR for their account using CNY. This is incorrect.