Relativity wrote:
As so, to explain :
As an example. When one trades EURUSD, he isn't trading EURUSD. Say go long. Which actually means he is doing 2 things (not 1) :
1- Buy EUR
2- Sell USD
These 2 actions will affect the entire market in 2 ways :
a- Strengthen EURxxx side
b- Weaken xxxUSD side
Every trader should be aware of this. At least the part 1 & 2.
.
Hi Relativity.
I disagree with your theory.
This is the way it is:
"All" entries are purchases and when you exit, you sell what you Had purchased. We never buy and sell 2 currencies at the same time. (unless the transaction is with paper money such in money exchange places or Banks)
If you enter (first transaction) a "Buy" EUR/USD your are buying Euros and create a demand for euros. The USD is the currency of the "loan" the Broker gave you to buy the Euros. When you exit, you are selling the euros and create a supply for euros So. in this case you are not selling USD and not creating any effect for it.
If you enter "sell" EUR/USD you are buying USD with a loan in Euros and create a demand for USD... and for exit, same principle apply as started above.
So, this apply for all pairs. When your first transaction is a "buy" you buy and hold the first currency of the pair . When your first transaction is a "sell" , you buy and hold the second currency of the pair.
Another point. Under your theory we would not profit/loss ever. Meaning if we buy euros and sold dollars at the same time, we would have an hedged positions as both currency are affected by the exchange rate simultaneously.
We can only profit/loss because what we "hold" and the "loan" do not change. Example.. buy 100 000 euros at 1.3320... That transaction is final and will not change. You now own 100 000 euros and have a debt of 133 200 dollars. From there on, the exchange rate continue to change but you will always own same amount of euros with the same debt. Now, Say you decide to sell when the rate is 1.3360. You will receive 133 600 dollars for your euros, you pay the loan of 133 200 and have 400 remaining that goes as profit in your statement.
I do not understand the FPI concept you are presenting. For me, the "I" of FPI is Inefficiency and means that at certain very shorts periods of time (milliseconds) a inefficiency is present and we can buy "3" currencies with an small advantage on the loans, is such way that if we sell them right away we can pay them and have money over right away. In in reality we can not take advantage of.
J.