beginner question about forex

F

fullblotter

Hello,

I've never traded forex before so I have a very basic question I hope someone can answer for me.

Let's say I put $100k USD into a forex account. Then I decide I want to go long 100k CAD/AUD. How much of my USD will be converted into CAD to execute this trade? If too much of the USD is converted then I could make on the CAD/AUD trade but then when I reconvert back to my base currency (USD) I can end up losing net.

Leverage is most likely the answer but I'm not sure of the details. Will my system automatically convert at 100/1 leverage even if my position is so small that I could trade at 1/1 leverage?

Any insight is appreciated. Thanks.
 
Quote from fullblotter:

Hello,

I've never traded forex before so I have a very basic question I hope someone can answer for me.

Let's say I put $100k USD into a forex account. Then I decide I want to go long 100k CAD/AUD. How much of my USD will be converted into CAD to execute this trade? If too much of the USD is converted then I could make on the CAD/AUD trade but then when I reconvert back to my base currency (USD) I can end up losing net.

Leverage is most likely the answer but I'm not sure of the details. Will my system automatically convert at 100/1 leverage even if my position is so small that I could trade at 1/1 leverage?

Any insight is appreciated. Thanks.
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You'd be better off putting this question directly to your broker as it varies.

Normally they'll only convert the amount needed for their standard margin, so if you make money on your position x100 times but lose on your x1 CAD position vs. the USD you will make money (only slightly less than if USDCAD remained unchanged; or slightly more if CAD appreciates vs. USD).
 
Here's how it would work with Interactive Brokers. When you buy AUD.CAD (not CAD.AUD), you borrow CAD from IB to purchase AUD. If you want CAD then you are borrowing AUD to buy CAD. Either way you always maintain the $100k in USD although some of it will be used to support the margin on the forex purchase.
 
Quote from Hurricane:

Here's how it would work with Interactive Brokers. When you buy AUD.CAD (not CAD.AUD), you borrow CAD from IB to purchase AUD. If you want CAD then you are borrowing AUD to buy CAD. Either way you always maintain the $100k in USD although some of it will be used to support the margin on the forex purchase.
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Hey thanks for the answer!Really helpful!
 
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