What exactly happens during Forex transaction?

External question — Personal Finance Stack Exchange Author: fso Original post: https://money.stackexchange.com/questions/100412 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. We are talking about Forex market. I want to figure out what exactly happens when I process a transaction on this market. Can you please correct me if I'm wrong: Assume we are working on EURUSD pair with an EUR currency account. At time t, there is a Bid(t) price and an Ask(t) price. If I decide to open a long position with volume v at time t and to close it at time t+n . My profits in EUR should be ((Bid(t+n) - Ask(t)) * v) / Ask(t+n) // converted back to EUR since I buy USD when I close the position . If I decide to open a short position with volume v at time t and to close it at time t+n . My profits in EUR should be (Bid(t) - Ask(t+n)) * v // no conversion since I buy EUR when I close the position .

External answer — Personal Finance Stack Exchange Author: DoubleDemander Original post: https://money.stackexchange.com/a/165257 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. When you open and close a position on the Forex spot market for retail customers nothing really happens since this market has the lower volume. With that unusual EUR account conversions using the EURUSD price happen in both directions. Since you had an exposition (description of the more common Metatrader) and it had to be converted once it also has to be converted a second time. Your formula with the division is suitable for calculating the return. It is also dependent on the broker type whether it will change anything in his funds just for your position. Finally you get a higher volume for yourself if it is in fact a profit.