Forex trading examples 

Reviewed by Patrick Foot, Senior Financial Writer. 

Forex trading allows you to speculate on price movements in the global foreign exchange market. Currency values rise and fall in relation to each other and in response to national and international economic, financial and political events. 

When trading forex, you would buy a currency pair if you believed that the base currency will strengthen against the counter currency.

Forex trading allows you to speculate on price movements in the global foreign exchange market. Currency values rise and fall in relation to each other and in response to national and international economic, financial and political events. 

When trading forex, you would buy a currency pair if you believed that the base currency will strengthen against the counter currency. Alternatively, you would sell a currency pair if you believed that the base currency will weaken in value against the counter currency. 

You can choose to trade FX through spot FX and spread bets. 

Learn more about the type of FX trades available here. 

Selling (going short) GBP/USD as a spread bet 

Traders are closely watching diverging monetary policy between the UK and the US. You expect the pound to depreciate against the US Dollar, i.e. the US Dollar will strengthen against the pound, and decide to sell (go short) £5 a point at 1.32500. 

Note: in this example the margin as well as the P&L are calculated in pounds. 

The winning trade 

You were right about your suspicions, and the Pound drops against the Dollar. The rate drops to 1.32450, at which point you close your trade. The price has decreased by 5 points from your opening price resulting in £25 profit. 

The losing trade 

The market didn’t move as you expected. Stronger-than-expected UK economic data supports the pound, pushing it higher. The pound climbs to 1.22489 before you decide to close your position. The price has moved 5 points against you, resulting in a loss of £25. 

A sell trade (going short) on EUR / USD as a spot FX trade 

Investors are concerned about the upcoming elections across Europe and you expect the euro to fall against the US dollar. You decide to sell (go short) €20,000 at 1.1650.  

In forex trading, the trade size is in units of the first, or base, currency in the pair 

EUR/USD has a margin factor of 3.33% 

The margin as well as the P&L are calculated in dollars, the counter currency of the pair. 

Winning trade 

The euro drops against the dollar as political event risk increases and you decide to buy €20,000 at 1.1570 to close your trade with a profit of €160. 

StoneX Trading automatically converts trading P&L into the client’s denominated account currency at the prevailing market rate at the time that the trade is closed. 

Losing trade 

Supposing a weaker dollar across the board pushes the euro up by 50 points and you buy to close at 1.1700 you would have lost $100. 

Note: in this example, the margin as well as the P&L are calculated in pounds. 

Next chapter What is forex trading?