Monday, July 28, 2008

multiple PnL currencies in 1 FX trading account

(For large banks, see other blog)
Q: how and why would a system maintain 2 pnl reporting currencies in a single fx trading account?
Be it client accounts maintained at a sell-side dealer or sell side trader accounts, in most cases there's probably good reason to consolidate all open positions into a single reporting currency. However, I think there are important exceptions.

One possible exception is house account handover, say from NY to Tokyo. It might make sense to have a book using both USD and JPY as reporting currencies, so NY open positions can be handed over Tokyo.
Here's another exception.

Based on http://www.surefire-forex-trading.com/forex-trading-accounts.html
You sell (go short) USD/JPY and as such are short USD and Long (bought) JPY. You enter the trade at 116.10 and exit 116.90. You in fact made 80,000 Japanese Yen (1 lot traded) not US Dollars.
If you traded all four major currencies against the US Dollar you would in fact have made or lost in EUR, GPY, JPY and CHF. This might give you a ledger balance at the end of the day or month with four different currencies.

This is common in London. They will __stay__ in that currency until you instruct the broker to exchange the currencies into your own base currency. Most US based (retail) traders assume they will see their balance at the end of each day in US Dollars.

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