Examples of Forex Trading

Trading Rising Prices

After some research, if you feel that the Japanese yen (JPY) will strengthen against the U.S. dollar you will want to buy JPY now and sell it back in the future at a higher price.

These are the steps you would take:

1. Buy JPY. The quote is JPY/USD at Bid 0.9670 and Ask 0.9675. This means that you can sell 1 JPY for 0.9670 USD or buy 1 JPY for 0.9675 USD.

2. You buy JPY 100,000, at the quote price of 0.9675 (ask price) per JPY.

3. If the market moves in favor of the JPY and the JPY/USD is now quoted at Bid 0.9689 and Ask 0.9692 you can sell JPY for a profit.

4. Sell JPY at a Bid price of 0.9679.

5. The profit is calculated as follows:

Sell price-buy price (x) size of trade
(0.9679 minus 0.9675) multiplied by 100.000 = USD 140 Profit
The profit or loss is always expressed in the secondary currency.

Trading Falling Prices

Another scenario is if you believe that the Euro will weaken against the U.S. dollar. In this case you would want to sell CAD/USD.

These are the steps you would take:

1. Sell CAD. The quote is CAD/USD at a Bid price of 0.9875 and Ask price of 0.9880.

2. You sell the Canadian dollar 100,000 at a Bid price of 0.9875.

3. If the market moves in favor of your position, and the Canadian dollar weakens against the dollar, the CAD/USD is now quoted at Bid 0.9744 and Ask 0.9749.

4. Buy CAD at an ask price of 0.9749.

5. Your profit/loss is then calculated:

Sell price-buy price x size of trade
(0.9875 minus 0.9749) multiplied by 100.000 = USD 1260 Profit