The short answer is "nothing". The retail FOREX market is purely a
speculative market. No physical exchange of currencies ever takes
place. All trades exist simply as computer entries and are netted out
depending on market price. For dollar-denominated accounts, all
profits or losses are calculated in dollars and recorded as such on
the trader's account.
The prime reason behind existence of FOREX market is to facilitate the
exchange of one currency into another for multinational corporations
that trade currencies continually (for example, for payroll, payment
for costs of goods and services from foreign vendors, and merger and
acquisition activity). However, these days corporate comprise only
about 20% of the market volume. Fully 80% of trades in the currency
market are speculative in nature, put on by large financial
institutions, multibillion dollar hedge funds and even individuals who
want to express their opinions on the economic and geopolitical events
of the day.
Because currencies always trade in pairs, when a trader makes a trade
he or she is always long (buy) one currency and short (sell) the
other. For example, if a trader sells one standard lot (equivalent to
100,000 units) of EUR/USD, she would, in essence, have exchanged euros
for dollars and would now be "short" euros and "long" dollars. To
better understand this dynamic, let's use a concrete example. If you
went into an electronics store and purchased a computer for $1,000,
what would you be doing? You would be exchanging your dollars for a
computer. You would basically be "short" $1,000 and "long" one
computer. The store would be "long" $1,000 but now "short" one
computer in its inventory. The exact same principle applies to the FX
market, except that no physical exchange takes place. While all
transactions are simply computer entries, the consequences are no less
real.
read more at http://www.pravasitoday.com/all-you-wanted-to-know-about-the-international-currency-market
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