The act of trading forex is essentially the exchange of two different currencies. The premise of exchanging these currencies is to predict the change in relative value and pocket the profit.
Because you are, in effect, buying one currency with another, it would logically follow that you can withdraw the purchased currency at any time. For example, if you were to use British Pounds to buy Euros, it would make sense that you would be able to withdraw Euros to you trading account rather than close the trade and re-exchange your funds for Pounds.
In this article, we examine how the practice of obtaining profit from a forex trade works, including which currency your profit is delivered, and why.
Forex is short for foreign exchange. It can technically encompass the act of going to a bank and trading one currency for another. But when we talk about ‘forex trading,’ this isn’t what we mean.
For traders, forex is speculative. It means either temporarily acquiring currencies or simply wagering on market movement without actually taking possession of a currency. In other words, there’s no physical exchange of currencies.
This means that when you trade forex through an online forex broker you aren’t in possession of the currency you ‘buy.’ Consequently, you are not able to withdraw a purchased currency in place of the default currency set by your account.
To illustrate why a forex trade does not work in the same manner as exchanging one currency for another at the bank, let’s use a spread bet as an example.
We ‘buy’ US dollars with GBP. However, this does not mean we’ve made a physical exchange. Instead, what we’ve actually done is wager that the US dollar will increase in value against the pound. We haven’t actually exchange our money.
No US dollars have ever come into our possession, either physically or virtually. We merely speculated how the market would move. Therefore, when a trade closes and money is deposited into our trading account, it is done so in the same currency in which the trade was made.