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View Full Version : Can you trade in money markets without needing foreign currency accounts?



d000hg
7th October 2016, 10:40
Perhaps a stupid question but do you have to physically hold foreign currencies if you want to trade in them, with an account to put them in?

Two slightly different cases I was wondering about:

1)Can you own the actual foreign currency without having a personal account to store it in? i.e. a bit like Transferwise the money stays in its own country unless/until you actually want it, you buy some Euros but they are held by someone else.

2)Can you buy an 'interest' in a foreign currency, a little like how you can trade in gold without actually owning any physical gold? Some kind of financial product which mirrors the values of the currencies but you never own the actual currency itself.

Do such options exist and what are they called if so?

GB9
7th October 2016, 10:44
Get a spread betting account with the likes of IG or Spreader. Or use cfds.

However, for ex is exceptionally volatile and you can lose a hell of a lot very quickly. Don't assume that because sterling is down today it will go further on Monday. Short term bounces can happen in seconds.

tomtomagain
7th October 2016, 10:47
Today could be a very expensive day to learn about currency trading.

BlasterBates
7th October 2016, 10:51
Trouble with spread betting is it is expensive you pay a lot of interest, only good for short term trades. I would enquire at your bank. You may be able to enter a froward rate agreement.

fullyautomatix
7th October 2016, 10:53
When the siwss ban removed the ceiling on CHF vs EURO, entire Forex trading companies collapsed within days. I personally know traders losing 30 - 40K in a day before they could login and stop things.

GB9
7th October 2016, 10:53
Trouble with spread betting is it is expensive you pay a lot of interest, only good for short term trades. I would enquire at your bank. You may be able to enter a froward rate agreement.

You're paying for the leverage you get. I would be wary of margins banks charge.

d000hg
7th October 2016, 11:21
I would NOT be interested in leveraging. I'm not 100% sure I know what it is other than that it increases your risk :)

BlasterBates
7th October 2016, 11:27
I would NOT be interested in leveraging. I'm not 100% sure I know what it is other than that it increases your risk :)

In that case you can simply open an foreign currency account or alternatively buy short term bonds in the currency you want to trade in, i.e. ones expiring in the time frame you want to speculate or hedge. By buying short term bonds you are not exposed to interest rate risk, providing you hold them until they expire.

For example if you want USD you could buy US treasury or for example General Motors bonds in USD expiring in 6 months.

Fronttoback
7th October 2016, 14:24
Perhaps a stupid question but do you have to physically hold foreign currencies if you want to trade in them, with an account to put them in?

Two slightly different cases I was wondering about:

1)Can you own the actual foreign currency without having a personal account to store it in? i.e. a bit like Transferwise the money stays in its own country unless/until you actually want it, you buy some Euros but they are held by someone else.

2)Can you buy an 'interest' in a foreign currency, a little like how you can trade in gold without actually owning any physical gold? Some kind of financial product which mirrors the values of the currencies but you never own the actual currency itself.

Do such options exist and what are they called if so?

You need to understand the concept of a "position".

A currency trade is always a buy of one currency and simultaneous sale of another. You can do them if you hold two bank accounts in two currencies.

Or you can open a trading account. They will allow you to buy the currency pair. So you get into a trade to buy 80 euros for 75 sterling. But you never settle the trade. You never pay the sterling or receive the euros. You of course, must have the sterling in your account (plus more) as guarantee. When you got into the trade at a specific rate (eg. 1.06) you expressed an interest in one currencies strength versus another. That is taking a position. Now, if supply and demand (etc) changes the current exchange rate after you did your trade, your trade is now worth more or less than it was when you did it. So if the rate right now is 1.10, your trade is worth (1.10-1.06)xNumberUnitsCurrency. That is your PnL. That is all you are interested in. Now, if this was done to really buy the euros, at the end of the day you would settle the trade and close the position, receiving your euros. But in trading they roll the trade day after day, by extending the settle date by one day after every business day (behind the scenes there is
more trading going on to facilitate this for you). In this way you having changing theoretical PnL but you never actually receive the euro amount agreed at the start of the trade.

When you decide to exit your trade, you close your position in either a profit or a loss. You pay/receive in your home currency. So while your trade was on you had some euro exposure without needing a euro account.

Check this information for yourself. You can get burned in forex trading.

NotAllThere
7th October 2016, 14:51
I would NOT be interested in leveraging. I'm not 100% sure I know what it is other than that it increases your risk :)Leveraging is borrowing money to buy something that you hope will increase in value.

E.g. you borrow money at 1% in order to buy a £10K bond that pays out at 5%. If you borrow £10K, then after a year you've paid interest of £100. But your bond has paid out £500.

The risk is that the bond defaults. Your bond is now worth £5, and you still owe the bank £10100.

It's the same as when you get a mortgage to buy a house in the hope that when you then sell 6 months later you make a tidy profit The risk there is that house prices fall.

missinggreenfields
7th October 2016, 14:59
The risk there is that house prices fall.

Excellent - a risk-free investment then.