I've been working on understanding pip-worth calculations. I can calculate the (pip/rate) * (notional amount) formula but I would like to understand how to derive it.
Brokers must have various currencies in banks to allow me to buy USDJPY when all I have in my account is USD, correct?
If I buy one 10k lot of USDJPY at 130.26, the broker holds $50 of my money as a margin and then transfers $10k worth of yen (JPY 1,302,600 in this example) into USD.
If I later sell USDJPY at 130.36, the broker changes the $10k back into JPY which at this point becomes JPY 1,303,600. The broker must now use the original exchange rate of 130.26 to calculate how much I have gained, correct?
I guess this only makes sense because if they used the new exchange rate my account balance would not change at all. I'd just like someone to verify this or point out where my thinking went wrong if I'm incorrect.
Thanks,
Forexwindo
Brokers must have various currencies in banks to allow me to buy USDJPY when all I have in my account is USD, correct?
If I buy one 10k lot of USDJPY at 130.26, the broker holds $50 of my money as a margin and then transfers $10k worth of yen (JPY 1,302,600 in this example) into USD.
If I later sell USDJPY at 130.36, the broker changes the $10k back into JPY which at this point becomes JPY 1,303,600. The broker must now use the original exchange rate of 130.26 to calculate how much I have gained, correct?
I guess this only makes sense because if they used the new exchange rate my account balance would not change at all. I'd just like someone to verify this or point out where my thinking went wrong if I'm incorrect.
Thanks,
Forexwindo