Forex Basics

Forex Trading Examples

Follow three complete forex trades from entry to exit — a long, a short, and a position-sizing walk-through. Every price, pip count, and dollar figure is shown so you can check the math yourself.

Key Takeaways

  • Every trade involves buying one currency while simultaneously selling another.
  • Profit equals pip movement × pip value × number of lots traded.
  • Stop-loss and take-profit levels should be set before entering any trade.
  • Worked examples help you connect pip math to real dollar outcomes.

How a Forex Trade Is Structured

Before placing any trade you need to define five things. Skipping even one — especially lot size or stop-loss — turns trading into guesswork.

1
Currency PairWhich two currencies you are trading. EUR/USD is the most liquid pair and the one used in every example below.
2
Direction — Buy or SellBuy (go long) if you expect the price to rise. Sell (go short) if you expect it to fall. You can profit in both directions in forex.
3
Lot SizeDetermines how much each pip is worth — and therefore how much money you make or lose per price movement. Always calculate from your account size and risk tolerance, not from a guess.
4
Stop-LossThe price at which the trade closes automatically if it moves against you. This is not optional — it is the mechanism that keeps a bad trade from becoming a catastrophic one.
5
Take-ProfitThe price at which you lock in your target gain. Setting it before entry turns your trade into a plan with a defined risk/reward ratio rather than an open-ended bet.

Example 1 — Long Trade: Buying EUR/USD

EUR/USD has pulled back to a support level after a strong uptrend. You decide to buy 1 mini lot (0.10 lots), expecting the pair to recover toward the previous high. A mini lot on EUR/USD gives you exactly $1.00 per pip with a USD account.

You place your stop-loss 30 pips below entry — beneath the support level — and your take-profit 70 pips above, targeting the prior swing high. That gives you a 1:2.33 risk/reward: you risk $30 to potentially earn $70.

▲ BUY (Long) EUR/USD 1 Mini Lot · $1.00/pip
Take Profit 1.11200 +70 pips · +$70
Entry 1.10500 Mini lot · 10,000 units
Stop Loss 1.10200 −30 pips · −$30
Risk/Reward: 1 : 2.33

If price reaches 1.11200 the take-profit triggers and you collect +$70 (70 pips × $1.00). If price drops to 1.10200 instead, the stop-loss closes the trade at −$30 (30 pips × $1.00). The asymmetry — risking $30 to potentially earn $70 — means you can be right less than half the time and still be profitable over many trades.

Example 2 — Short Trade: Selling EUR/USD

EUR/USD has rallied to a resistance zone and momentum is fading. You decide to sell 1 mini lot, expecting a pullback. You set your stop-loss 30 pips above your entry — above resistance — and your take-profit 60 pips below, at the next support level.

▼ SELL (Short) EUR/USD 1 Mini Lot · $1.00/pip
Stop Loss 1.11800 −30 pips · −$30
Entry (Sell) 1.11500 Mini lot · 10,000 units
Take Profit 1.10900 +60 pips · +$60
Risk/Reward: 1 : 2.00

When you sell (short), you profit when price falls. If EUR/USD drops from 1.11500 to 1.10900 — a move of 60 pips — your take-profit fires and you earn +$60. If price rises to 1.11800 instead, the stop closes the trade at −$30. Note that for a short trade the stop-loss is above your entry and the take-profit is below it.

Example 3 — Position Sizing Before Entry

Choosing the right lot size is not optional — it is how you control risk. The formula links your account size, your risk tolerance as a percentage, the number of pips to your stop, and the pip value of the pair.

Lot Size = (Account Balance × Risk %) ÷ (Stop-Loss Pips × Pip Value per Lot)
$1,000 account — 1% risk — 25-pip stop on EUR/USD
  • Maximum acceptable loss: $1,000 × 1% = $10
  • Pip value per micro lot (0.01): 1,000 units × 0.0001 = $0.10/pip
  • Lot size = $10 ÷ (25 × $0.10) = $10 ÷ $2.50 = 4 micro lots = 0.04 lots
  • Check: 4,000 units × 0.0001 = $0.40/pip; 25 × $0.40 = $10 ✓

Always round down to the nearest 0.01 lot — rounding up puts more money at risk than you calculated. Most retail platforms accept a minimum of 0.01 lots, so this formula works at any account size starting from a few hundred dollars.

The Spread: Your First Cost on Every Trade

Every trade opens at a small loss because of the spread — the gap between the buy price (ask) and the sell price (bid). When EUR/USD is quoted at 1.10502 / 1.10510, you buy at 1.10510 but the market immediately values your position at the bid of 1.10502. That 0.8-pip difference is the spread.

On a mini lot that opening cost is $0.80 (0.8 pips × $1.00/pip). On a standard lot it would be $8.00. The spread is paid on entry regardless of whether the trade wins or loses — which is why position sizing and having a clear target matters. A tight take-profit that barely covers the spread is a poor trade on paper before it even starts.

Frequently Asked Questions

A single micro lot (0.01) buy or sell on EUR/USD with a fixed stop-loss and take-profit. Pip value is $0.10, so a 20-pip adverse move costs just $2. This lets beginners experience real trade mechanics without meaningful financial risk.
Mathematically possible but not realistic as a consistent daily target. On a mini lot, you need 100 winning pips per day to make $100 — EUR/USD typically moves 50–120 pips total per day in both directions. Focus on process and risk per trade rather than daily dollar targets. See: How Much Can You Make Trading Forex?
Risk/reward (RR) = potential profit ÷ potential loss. A 1:2 RR means you risk $30 to earn $60. Many traders require at least 1:1.5 or 1:2 before entering. A good RR does not guarantee profit — it ensures that when you do win you earn more than you lose, so a sub-50% win rate can still be profitable over time.
MT4 and MT5 display floating profit/loss in your account currency on the open trades tab, updating tick by tick. The platform handles all pip-to-dollar conversion automatically. Still calculate your expected P&L at both stop and target before entering — don’t rely solely on the platform display to manage risk.
What Is a Pip? How pips measure price movement and pip value by lot size How to Calculate Pips Step-by-step pip calculation with worked EUR/USD & JPY examples What Is a Lot Size? Standard, mini, micro and nano lots explained with pip values Long and Short in Forex What going long and short means and how each trade works Trading Plan Template How to build a forex trading plan with rules and risk limits
Forex Basics Guides
Core Concepts
Costs and Instruments
Leverage and Capital
Market Mechanics
Trading Practice
Comparing Markets

Build confidence with a free FXGlory demo account. Test forex strategies, learn platform tools, and practice risk management without using real funds.

Open a Free Demo Account