What are the mechanics behind forex trading?

External question — Personal Finance Stack Exchange Author: Ryan B. Original post: https://money.stackexchange.com/questions/89137 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. When someone is trading forex, are they currently really buying international currencies, or is it only some sort of gambling between them and their broker (like when trading CFDs)?

External answer — Personal Finance Stack Exchange Author: Rupert Morrish Original post: https://money.stackexchange.com/a/89149 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. To the extent that the institution where you have your forex account is solvent, yes, you really own those currencies. So I suppose it may be more accurate to say you own a debt denominated in that currency, but the distinction is only important in disaster scenarios.

External answer — Personal Finance Stack Exchange Author: Simon B Original post: https://money.stackexchange.com/a/89154 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Check the Terms and Conditions of the broker. You could find that they may actually perform the trade you ask, but aren't required to if they don't want to. If they are the sort of company that has large numbers of clients making small trades, then they may not bother to actually make the smaller trades. They have sufficient balance in the bank to pay out if they lose. But, in any case, the whole system will be rigged so much in their favor that they are almost certain to win on a majority of the trades anyway. That's because each trade has a commission charge added to it. Even those clients who are clever enough to get the currency shifts correct most of the time will still end up losing money because of all those charges.