3 Simple Forex Trade Examples

Here are examples of trades I have made recently, and this article serves to tie together all the previous lessons.  Having read previous articles in this section, you should be able to confidently and safely open/close your first trade. I assume that you have taken the step and research for a good Forex broker so you have access to Forex market data.

For the purpose of this exercise, I am going to walk you through some practical trade examples, which will show you how to analyze a trade and all the things you need to prepare before initiating a successful trade.

Example 1: Trading the Aussie with $10,000 Account

In this example, we’re going to assume that you’re starting your first trading account with a relatively good account balance of $10,000. If you want to apply all the things learned in this example, I should share a little bit of more information about the trading account.

We’re going to assume the following:

  • Account Balance: $10,000
  • Account Leverage: 1:100
  • Account Margin: 1% (Margin=1/Leverage)
  • 1 Standard Lot = $100,000
  • Favorite Currency Pair: AUD/USD

After a proper analysis, we have identified that the main bullish AUD/USD driver has been the RBA hawkish rhetoric and the broad-based dollar weakness. The price is also moving in a sustained uptrend from a technical perspective which confirms the fundamentals.

In order to time the market, we use technical tools. I use the 50 moving average to gauge the trend, and the stochastic indicator to spot potential oversold levels from where the market can bounce and resume the trend.

Since we know that the Australian Dollar is one of the most traded currencies and has enough liquidity, and in order to boost our chance of success we decide to wait for the New York open to look for potential buying opportunities.

Note: Since, in this case, we want to trade with the trend, we can place a Buy limit order at the 50EMA (0.7620) and preferably around New York open. We only traded 1 standard lot.

So far, we have applied both technical and fundamental analysis, which helped us to form a bullish bias and subsequently to initiate a buy trade using a limit order.

A buy order is filled at the bid price and since we used a limit order type we should get filled at the specified 0.7620 bid price.

Margin, Pip Value, and PnL Calculation:

Margin Requirement = (Contract Size * Lot Size * Price) / Leverage =

($100,000 *1*0.7620)/1:100=$762

The margin requirement for our trade is $762 which can be covered from our $10,000 account balance. So, we have enough margin as collateral in our account to cover this trade.

Pip Value = (One Pip / Exchange Rate) * Lot size =

(0.0001/0.7620) * $100,000 = 13,12 AUD = $10

Each pip movement in the AUD/USD exchange rate is worth $10.

The market proves us right in our AUD/USD forecast and it reaches our target of, let’s say, 0.7800 netting us a very nice 180 pips profit. Since the selling price is higher than the buying price, this means that you have made 180 pips profit (Closing Price 0.7800 – Opening Price 0.7620 = +180 pips).

PnL = Pips Gained(Lost) * Pip Value *Lots Traded =

180 * $10 * 1 Standard Lot = $1800 in Profit

For this trade, we ended up with a nice profit of $1800 which represents an 18% gain on your overall account in just one trade.

Note: When you close the trade you use the Ask price because you need to sell your position.

Example 2: Trading with a Bigger Forex Account

Trading with a bigger Forex account balance gives you the potential to make more profit in nominal terms. For the purpose of this example we’re going to assume the following:

  • Account Balance: $100,000
  • Account Leverage: 1:50
  • Account Margin: 2% (Margin=1/Leverage)
  • 1 Standard Lot = $100,000
  • Favorite Currency Pair: EUR/USD

The EUR/USD is moving in an intraday range, and we want to take advantage of this range by using a stop order and buy at support and sell at resistance. We sell 8 standard lots at resistance 1.1780 and take profit at support 1.1740, netting us a 40 pips profit.

Margin, Pip Value, and PnL Calculation:

Margin Requirement = (Contract Size * Lot Size * Price) / Leverage =

($100,000 *8*1.1780)/1:100=$9424

The margin requirement for this trade is $9424 and since we’re trading the EUR/USD the value of 1 pip for each standard lot is $10. Since we’re trading 8 lots the pip value is $80.

PnL = Pips Gained(Lost) * Pip Value *Lots Traded =

40 * $10 * 8 Standard Lot = $3200 in Profit

The net profit for this particular trade is $3200.

Note: Because we entered a short trade we sold initially at the ask price and when we close the trade we bought at the bid price. 

Example 3: Trading Forex Cross Currencies

For the purpose of this example we’re going to assume the following:

  • Account Balance: $15,000
  • Account Leverage: 1:50
  • Account Margin: 2% (Margin=1/Leverage)
  • 1 Lot = $10,000
  • Favorite Currency Pair: EUR/GBP

After we have done our technical and fundamental analysis, we conclude that the market is going to rise right away.  This means that we’re going to use a market order to enter into a long position with 5 lots. Our entry price is 0.8930 the current Bid price paying a spread of 2 pips (the difference between the Bid price and Ask price).

Margin, Pip Value, and PnL Calculation:

The margin requirements for a non-US dollar currency is as follows:

Margin Requirement = [Contract Size * Lot Size * (Base Currency/Account Currency)] / Leverage =

(10,000 * 5 *1.1850) / 1:50 = $1185

Note: For the above calculation we also need the EUR/USD exchange rate which is 1.1850

If we’re dealing with cross rates that don’t involve the US Dollar you can directly apply the following formula to determine the pip value:

Pip Value = [(One Pip / Exchange Rate) * Lot size] *Base Currency Exchange rate

= (0.0001/0.8930 * 50,000) * 1.1850 = $6.63

We also assume that the market goes against us and hits out stop loss which was located at 0.8850. Since the selling price is lower than the buying price means that you have lost -80 pips (Closing Price 0.8850 – Opening Price 0.8930 = -80 pips).

PnL = Pips Gained(Lost) * Pip Value *Lots Traded =

-80 * $6.63  = $553 Loss

For this trade, we ended up losing $533 from our account.

Conclusion

The process of knowing your numbers before you enter a trade should come naturally after you gain more experience and trade more. However, you do need to make sure you know your numbers before you get into a Forex transaction if you are to have continued success. Being in control of your trades is what you want to accomplish and by knowing your numbers you ensure that you won’t panic when the market moves against you.

Trading Forex and CFDs is not suitable for all investors and comes with a high risk of losing money rapidly due to leverage. 75-90% of retail investors lose money trading these products. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Trading Forex and CFDs is not suitable for all investors and comes with a high risk of losing money rapidly due to leverage. 75-90% of retail investors lose money trading these products. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.