How a Trade Works

A trade is a planned round trip: you enter, you hold a position, and you exit. Profit or loss is the difference between those prices, after costs, in the direction you chose. This lesson uses hypothetical numbers only as arithmetic examples. They are not forecasts and they are not recommendations.

Buy/long and sell/short

To go long is to buy with the intention of selling later at a higher price. You profit if the instrument rises enough to cover costs; you lose if it falls. To go short is to sell first with the intention of buying back later at a lower price. You profit if the instrument falls enough to cover costs; you lose if it rises. Shorting is not a moral category. It is simply the opposite directional bet on the same pair or metal.

In a quoted pair, “buy EUR/USD” is a long on the euro versus the dollar. “Sell EUR/USD” is a short on that same relationship. Always translate the button on the screen back into base-versus-quote language.

Entry, position and exit

The entry is the price (and time) at which the position is opened. The position is the open exposure: instrument, direction, and size. The exit is the closing trade that removes that exposure. Until you exit, the result is only a running calculation. After you exit, the result is booked to the account.

Beginners sometimes stare at entry and forget that risk lives in the whole round trip: size, costs, and the exit plan. A clever entry with no exit plan is an incomplete trade.

Profit and loss, in plain language

If you are long, a higher market is in your favour and a lower market is against you. If you are short, the opposite is true. Platforms usually show this as a money amount based on contract size. That amount is not “yours” until it is realised, and it can reverse.

Unrealised (or floating) profit and loss is the mark-to-market value of an open position. Realised profit and loss is what remains after the position is closed, including spread, commissions if any, and financing charges if they applied. A large unrealised gain can still become a realised loss if the market turns before you exit.

Market, limit and stop orders

A market order says: deal now at the best available price. Speed is the priority. The fill can differ from the last quote you saw, especially in fast markets.

A limit order says: deal only at this price or better. For a buy, “better” means at the limit or lower. For a sell, at the limit or higher. The order may not fill if the market never trades there.

A stop order, at beginner level, is an order that becomes active after the market reaches a trigger price, often used to enter on a break or to exit a losing trade. Once triggered, it may be filled at the next available prices, which can be beyond the trigger. The next lesson on Stop Loss and Take Profit builds on this idea. A stop is a plan, not a promise of an exact print.

Hypothetical example

Suppose, as a classroom example only, a trader buys a tiny long in a quote that looks like 1.1000 and later sells at 1.1050. The market moved 50 points in the trade’s favour. Whether that is a meaningful money result depends entirely on position size and costs. If the spread was 2 points at entry, part of the move was needed merely to get back to even. If the trader had been short instead, the same rise would have been a loss.

Change only the size, and the same 50-point move becomes a very different account event. That is why later lessons on lots, leverage and risk management belong next to this one. Direction without size is only half a trade.

Transaction costs and the spread

The round-trip cost starts with the spread: you typically buy at the ask and sell at the bid. Some accounts add a commission. Positions held across certain times of day may also incur a financing or swap charge. Costs do not make trading “unfair”. They make breakeven farther away than a mid-price chart suggests. Ignoring them makes hypothetical examples look better than live results.