Forex trading examples
To help you better understand how forex trading works, here are a couple of forex trading examples.
Every month, the economic calendar is filled with economic events. One of the most highly anticipated bits of news is the release of the NFP or Non-Farm Payroll figures. It is reported by the US Bureau of Labor Statistics on a monthly basis, offering traders valuable insight into the performance of the US economy.
Going long (buying) EUR/USD
Here’s an example of a long trade. The US job market seems to stall. You think the level of the Non-Farm Payroll (NFP) will be below the estimates of analysts and expect the US Dollar to weaken against the Euro. For that reason, you decide to buy 1 Lot ($100,000) of EUR/USD at 1.2101, which corresponds to a $10 stake per pip movement.
The report is released and the NFP headline number prints weaker than the experts estimated, causing the US dollar to slump. The EUR/USD pair now trades at 1.2152 and you decide to close the position. You opened the trade at 1.2101 and sold at 1.2152. The difference of 51 pips is your profit ($510).
EUR/USD trading example (long)
Going short (selling) USD/JPY
Here’s an example of a short trade. Remember when we said that it is the fourth decimal point, we use to calculate profit and loss? Pairs that include the Japanese Yen (JPY) are the exemption to that rule. Here, we look at the second decimal instead.
Let’s assume that you open the USD/JPY 1-hour chart looking for trading opportunities early in the morning. The pair is trading at 113.63 and your technical indicators suggest a high probability for the market to move lower.
You sell 1 mini lot ($10,000), which corresponds to a $1 stake per pip movement. This time you decide to add stop-loss and take-profit orders to your position, so that your risk is managed while you are at work. You set your take-profit at 113.27 and the stop-loss at 114.24.
You are back from the office and go straight to your account to check what happened with your position. Your account balance is down by $53.38 [(¥114.24 – ¥113.63) x$10,000]. The market moved higher, triggering the stop-loss order that you placed and cancelling your take-profit order.