I'm not sure if i am asking this question the right way. When you hold currencies in a multi currency account (initial deposit in USD) and hold a pair, say GBP/CAD, does it matter which currency increases or decreases in percentage in order to make a profit on your initial deposit? If you want to accurately think of your position in pairs, as quoted on the Forex, you are long the GBP/USD, and short the USD/CAD separately. You are betting on both foreign currencies increasing in value, relative to the USD.
In this case, GBP/CAD, the British Pound is the base currency, and the Canadian dollar would be the the quote currency. The price represents how much of the quote currency is needed for you to get one unit of the base currency
The base currency is always the first currency quoted in a currency pair on forex. It is also typically considered the domestic currency or accounting currency. For accounting purposes, a firm may use the base currency to represent all profits and losses.
It is sometimes referred to as the "primary currency".
The currency exchange rate between two currencies, both of which are not the official currencies of the country in which the exchange rate quote is given in, is usually referred to as the "cross rate." This phrase is also sometimes used to refer to currency quotes which do not involve the U.S. dollar, regardless of which country the quote is provided in.
Your initial question, "Forex spreads?" is completely different from the rest of your question. The spread deals with the difference in the Bid/Ask, depending whether you are the buyer or seller, and is a stable rate that doesn't change, usually just a few points (or pips in the Forex). The Bid/Ask spread in Forex is the same principle in all markets, whether stocks, commodities, bonds, etc., and can be thought of as the commission.
You are asking about the "exchange rate" between the two currencies, which fluctuates every second of every day, and is the principle by which you will win or lose, maybe a great amount. To be even more precise, this is a floating exhcange rate, determined by the markets and not set by some gov't.
Now that we have defined our terms, the answer should become clear.
Since you are not using the Forex, you are going to pay the spread twice -- once when you traded US dollars for Pounds, and once when you traded US dollars for Canadian Dollars. You can think of the spread as a commission charge, for the broker handling your business. You are paying double brokerage fees.
You are actually long two separate currencies, and have not purchased a "pair," because you are going to convert back into USD someday. You are betting on both currencies increasing in value, relative to the USD. The way you are doing it, you have no way to actively Short a currency, other than just holding USD.
All forex trades involve the simultaneous buying of one currency and selling of another, but the currency pair itself can be thought of as a single unit, an instrument that is bought or sold. If you buy a currency pair, you buy the base currency and sell the quote currency. The bid (buy price) represents how much of the quote currency is needed for you to get one unit of the base currency. Conversely, when you sell the currency pair, you sell the base currency and receive the quote currency. The ask (sell price) for the currency pair represents how much you will get in the quote currency for selling one unit of base currency.
To finally answer your question about the GBP/CAD "pair," it really doesn't apply to your situation. In fact, there is no GBP/CAD pair quoted on forex. But if you could find a broker that offered it, and had purchased this pair on the Forex, it would depend on whether you were Long or Short the pair.
Long the pair -- you are betting on the GBP going up and the CAD going down, or any combination that causes the difference to widen. The GBP could go down a little, and the CAD go down a lot more, and you would still make money. You are betting on the CAD weakening more than the GBP, or you are betting the GBP getting stronger than the CAD. Check out http://currencytrading.hammocksurvivalgu...
for lots of really good articles about currency trading. |
