Chapter 5, Part I. Where does the money come from in FOREX? Page 2

2. Now, assume that after some days have passed, the GBP/USD rate has changed to 1.60. And you wish to exchange 10 000 GBP, that you’ve received during initial transaction, back into US Dollars. The question is: how many USD will you get from this reverse transaction?

Pipruit: I suppose it would come to 10 000*1.60 = $16 000...

Wait a minute! – There is a profit right here! It looks like – we’ve paid $15 500 on the initial transaction buying 10 000 GBP and got back $16 000 on the reverse transaction for the same 10 000 pounds – our profit is 500 bucks!​

Commander in Pips: That’s right – here is how the market works and where your profit is coming from. In fact you’ve calculated all the necessary transactions by yourself. It’s not so difficult, right?

Pipruit: Not at all. But, Commander, what will happen if he Cable rate will decline instead of increasing – to 1.50 for example…​

Commander in Pips: I suppose that you can answer on this question by yourself. Just calculate how many USD you will get from the reverse transaction in this case…

Pipruit: Ok, let’s see… 10 000*1.50 = $15 000. But we will lose $500 in this case! What should we do now, that’s awful!​

Commander in Pips: In fact it’s not so awful, because we will spend a lot of time in later chapters learning about risk management and an appropriate trading plan that will allow you to control losses and escape wrong trades. But now you must understand that FOREX is not the game at all. If you’re air-headed and lack discipline – you’re dead fiscally…

Pipruit: I will try to learn hard to understand all things perfectly and do not lose money. By the way, where does this 500 bucks disappear to?​