Not all securities can be bought on margin. Buying on margin is a double-edged sword that can translate into bigger gains or bigger losses. In volatile markets, investors who borrowed from their brokers may need to provide additional cash if the price of a stock drops too much for those who bought on margin or rallies too much for those who shorted a stock. In such cases, brokers are also allowed to liquidate a position, even without informing the investor. Real-time position monitoring is a crucial tool when buying on margin or shorting a stock.
When investors are selling, the exchange rate of the foreign currency tells them how many units of the quote currency they will get for one unit of the base currency. Traders make decisions to buy if they think that the value of the base currency might increase. In the example, traders would purchase the US dollar with the Euro if they expect the value of the US dollar to increase to $1.31. The change that takes place is how the investor makes a profit.