The short response is nothing. The retail FX market is strictly a speculative market. No real exchange of currencies ever occurs. All trades occur simply as computer entries and are netted out depending on selling price. For dollar-denominated accounts, all profits or losses are determined in dollars and recorded as such on the trader’s account.

The primary reason the FX market exists is to expedite the exchange of one currency into another for international companies who want to trade currencies constantly (for example, for payroll, payment for costs of goods and services from foreign vendors, and merger and acquisition activity). Nonetheless, these day-to-day corporate needs comprise no more than 20% of the market volume. Fully 80% of trades in the currency market are speculative in nature, put on by large banking institutions, multi-billion dollar hedge funds and even individuals who would like to convey their opinions on the economic and geopolitical events of the day.

Concept Trading in Pairs

Because currencies always trade in pairs, when a trader makes a trade he or she is always long one currency and short the other. For example, if a trader sells one standard lot (equivalent to 100,000 units) of EUR/USD, she would, basically, have exchanged euros for dollars and would certainly be short euro and long dollars. To better appreciate this dynamic, let’s utilize a real example. If you went into an electronics store and bought a computer for $1,000, what would you be doing? You’d be exchanging your dollars for a computer. You would essentially be short $1,000 and long 1 computer. The store would be long $1,000 but now short 1 computer in its inventory. Exactly the same principle pertains to the FX market, but no physical exchange takes place. While all transactions are merely computer entries, the effects are no less real.

Great Returns in Foreign Exchange Trading

The opportunities for unmatched returns and investment safety in the brave new world of foreign currency investing are second to none. In Foreign Currency Trading, financial executives Russell Wasendorf, Sr., and Russell Wasendorf, Jr., summarize foreign currency trading in basic words, and allow you to understand the risks, benefits, and operational specifications that you will need to take advantage of this market’s huge potential. Look to Foreign Currency Trading for clear explanations on the mechanics of foreign exchange trading, in-depth discussion of all relevant foreign exchange rules and regulations, and a thorough glossary with literally hundreds of terms important to forex trading. With formerly imposing currency trading limitations having been struck down in recent court rulings, the world of foreign currency trading is an exciting and rapidly-expanding area.

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