I'm new to the field of forex trading and I'm trying to understand what actually happens under the hood when I place an order.

The point is that I've read everywhere that I don't own the underlying asset (what is the asset in a currency pair?) But only a contract with a counterpart where we agree to lose or win (possibly leveraged) the difference in price. I assume that what I lose my counterpart gains and vice-versa.

What's the role of interbank network then? Why do we need them? Why do we need liquidity providers? Are money (lots bought) really moved/exchanged by some actors?

1 Answer 1


If it's on a forex trading platform, then in many cases nothing actually happens except for recording the transaction on their computer. They don't actually need to buy the money that you've "bought" from anyone else. They know at some point that you're going to sell it again, and they can settle up, based on how much you have gained or lost. Since most customers lose money, they can carry on doing the trades that way indefinitely.

If you bought a large enough amount of a currency, then they might actually go to their brokers, buy the currency, and leave it sitting in their account. They are the counterparty. Again, they will assume that most customers will lose, once the trading fees have been applied.

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