How does a foorex trade work?

I’m trying to wrap my head around how a Forex trade actually works.

Say for example I place a buy order on the EUR/USD @ 1.4015/1.4017.

The way I understand it is I am buying Euro’s at the asking price of 1.4017 and at the same time selling dollars at 1.000? What happens if I close my trade when I am at a profit of 20 pips? Am I selling back Euro’s for dollars and that difference is my profit?

I haven’t really found anyone who can explain this relatively well, thanks.

ok… lets say we are dealing with the EUR/USD and the current bid/ask is 1.3944/1.3946. The spread is .0002 or, in this case, 2 pips per unit you are placing your order. If you are going long, you buy in at 1.3946 and the price has to reach 1.3948 for you to be at zero as your broker is taking the spread.

If your are going short, or selling, you are in also at 1.3946, but the price must reach 1.3944 for you to be at even.

Most brokers I have dealt with work this way, infact, I haven’t traded any other way, so, I would think that’s how the spread affects a trade.

If you are working with a variable spread, whatever the spread is at the time you get out of a trade is taken from the value of the trade by the broker and the rest is taken by whom ever you are trading with.

This is why it is important to get in on trades when they are being made on a larger scale by larger traders such as national banks and the like. This way your pipcount has a better possibility of going in your favor as you are “riding on someone else’s shirttail” so to speak.

Further, yes, when you are buying (going long), you are buying the first of the two in the pair and selling the second. When selling (going short), you are buying the second of the pair and selling the first.

Hope that helps.

Good luck and good pippin,


Thanks chubs! I was getting hung up on the part where if you buy the base currency you are also selling the quote currency and when a trade closes the reverse happens and you profit the difference.