A forex trade takes a position on one currency relative to another. Before risking money, learn how quotes, order size, costs and margin work, then practise using simulated funds.
Risk warning: leveraged forex and CFDs can cause substantial losses. This guide is general education. Its hypothetical trade is not a signal or a recommendation.
Read the currency pair
In EUR/USD, the euro is the base currency and the US dollar is the quote currency. A quote of 1.1000 means one euro is valued at 1.10 US dollars. Buying the pair takes exposure to the euro rising against the dollar; selling takes exposure to the opposite move. Retail products may be rolling spot contracts or CFDs rather than delivery of currency; check the contract.
Understand bid, ask and spread
The bid is the price at which you can sell; the ask is the price at which you can buy. Their difference is the spread. If EUR/USD is quoted 1.1000/1.1002, the spread is two pips when a pip equals 0.0001. Spreads can widen during less liquid periods and around news.
Choose the order deliberately
- Market order: seeks execution at the available price, which may differ from the price you saw.
- Limit order: seeks your price or better but may not execute.
- Stop order: activates at a trigger level; a normal stop does not guarantee that execution price.
- Stop-limit order: combines a trigger and a limit, so it can remain unfilled in a fast move.
A hypothetical practice trade
Assume a USD account and a EUR/USD position of 1,000 euros, bought at an ask of 1.1002. If you later close it at a bid of 1.1032, the difference is 0.0030, or 30 pips. The gross result is 1,000 × 0.0030 = $3. If you instead close at 1.0972, the gross result is −$3.
These figures exclude commission and financing. Entry and exit prices already reflect the bid/ask sides, so do not subtract the same spread twice. Slippage and currency conversion can change the final result.
Margin does not define your maximum loss
Leverage lets you control a larger exposure with less collateral. A small move in the instrument can therefore make a large difference to your account. Margin requirements and close-out rules depend on the product and provider. Read position sizing and risk management before deciding a practice trade size.
A demo-account routine
- Read the product specification: contract size, pip size, minimum position and trading hours.
- Write a hypothetical entry, invalidation level, exit plan and loss budget.
- Calculate the size and check margin, commission and financing.
- Place a practice order and learn how to change or cancel it.
- Record the actual fill and costs, then review what differed from your assumptions.
Demo fills, liquidity and emotional pressure can differ from live trading. A few profitable practice trades do not establish a reliable strategy.
Check the broker before funding an account
Use our broker checklist to verify the legal entity, regulator, fees, account protections and withdrawal terms. Do not choose a provider simply because it offers a bonus, high leverage or a persuasive sales call.
Frequently asked questions
Must I trade every day? No. Waiting or deciding not to trade is an option.
Does a stop eliminate risk? No. Execution can differ from the trigger price and technical failures can occur.
Can news predict the next move? A release can affect prices, but the reaction depends on expectations and market conditions. Knowing the calendar is not a guarantee of direction.
Next: use the beginner learning path, explore trading tools and read Risk of Loss.
Practise the steps in a demo account
Use simulated funds to rehearse order entry, position size and closing a trade. Compare the platform’s controls with the steps in this guide.
XM — explore a demo account AvaTrade — explore the platform
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