Know Your Pips and Lots

The Pips & Lots To Know ...!
It is now that we're going to do a little math, yay! You've probably heard of "pips" and "lots" are often used in the middle of Forex, we'll explain what they are and how they are calculated.
Take your time with this information, it is knowledge Essenciel for any Forex trader. Do not even think a trader in real mode without feeling completely comfortable with pip values ​​of the lots.But what a PIP at the end?
The most common of currency fluctuations is the PIP. If the EUR / USD moves from 1.2250 to 1.2251, it increases by a PIP. A pip is the last decimal place of a quotation. With PIP you measure your profit or loss.
As each currency has its own value, it is necessary to calculate the value of a pip a particular currency. In Where the US Dollar currencies IS quoted first, the calculation as follows Would Be. If we tackle first the U.S. dollar, the calculation is:
We are interested in: USD / JPY at 119.80 (note that this currency pair has only two decimal places, most other currencies have four decimal places) for USD / JPY, 1 pip equals .01 ... Therefore :USD / JPY119.80
.01 Divided by exchange rate = pip value
.01 / 119.80 = 0.0000834 - the number is very long but we will discuss the size of the lot.

USD / CHF: 1.5250
.0001 Divided by exchange rate = pip value
.0001 / 1.5250 = 0.0000655
USD / CAD: 1.4890
.0001 Divided by exchange rate = pip value
.0001 / 1.4890 = 0.00006715In the case where information of the U.S. dollar is not given first, but we want to get the value in U.S. dollars, we must add a step
EUR / USD:
1.2200
.0001 Divided by exchange rate = pip value
therefore
.0001 / 1.2200 = 0.00008196 EUR
but we must return to the U.S. dollar, so we add another calculation which is
EUR x Exchange rate
Thus,
0.00008196 x 1.2200 = 0.00009999 is, when rounded: 0.0001GBP / USD: 1.7975
.0001 Divided by exchange rate = pip value
Therefore,
.0001 / 1.7975 = 0.0000556 GBPBut we must return to the U.S. dollar, to add another calculation which is GBP x Exchange rate
Therefore,
0.0000556 x 1.7975 = 0.0000998 - When rounding: 0.0001
You have certainly raised to heaven by asking you "Do I have to honestly work all this?? The answer is: NO. Almost all brookers make these calculations for you automatically. But it is always good to know how it works. In the next section, we'll see how tiny rewards can be accumulated and become attractive to our portfolio ...But what is a lot?
The standard size of a lot is 100,000 units. There are also lots or the minimum is 10,000 units. As you know, the currency fluctuations are measured with the pip, which is the smallest increment of a currency. To take advantage of these tiny units, currency trader you need in large quantities in order to see any profit (or loss) gaggner important. Suppose we use a unit of 100 000 (standard) as lot size. We will now recalculate some examples to see how it affects the pip value.
USD / JPY exchange rate of 119.80
(.01 / 119.80) x 100,000 = $ 8.34 per pip
USD / CHF at an exchange rate of 1.4555
(.0001 / 1.4555) x 100,000 = $ 6.87 per pipIn cases where the U.S. Dollar is not quoted first the formula is slightly different.
EUR / USD exchange rate of 1.1930
(.0001 / 1.1930) x 100,000 = 8.38 x 1.1930 = $ 9.99734 rounded up will be $ 10 per pip
GBP / USD exchange rate or 1.8040
(.0001 / 1.8040) x 100,000 = 5.54 x 1.8040 = $ 9.99416 rounded up will be $ 10 per pip.
Your Brooker may have another way to calculate the pip value relative to lot size, but the way they will be able to always provide clear information for your trader. As the market moves, it will be the same for the pip value of the currency for which you are negotiating.How do I calculate my loss and my profit?
So now that you know how to calculate the pip value, let's see how you calculate your profit or loss.
Will buy dollars and sell Swiss francs ...
The rate is set at 1.4525 / 1.4530. By buying dollars, you will work on 1.4530, the rate at which operators are willing to sell.
So you buy 1 standard lot (100,000 units) at 1.4530. A few hours later, the rating is raised to 1.4550, you decide to close your trade ...
The new quote for USD / CHF is 1.4550 / 14555.
As you close your trade and you initially buy 'to enter into negotiations, you now need to close the trade, selling at a price of 1.4550. This is the price that traders are now ready to buy.
The difference between 1.4530 and 1.4550 is 0020 or 20 pips.
Using our formula above:
(.0001/1.4550) X 100,000 = $ 6.87 per pip X 20 pips = $ 137.40
Remember, when you enter or exit a trade, you are bound to spread in the supply and demand. When you buy a currency, you stick to the offer price and when you sell, the price you submit the application. So when you buy a currency you pay the spread ... but not to the output. And when you sell a currency you do not pay the spread when you enter, but you pay when you close your trade.What is leverage?
You're probably wondering how a small investor like you can trade such large amounts of money. Imagine if your bank will lend $ 100,000 to trade, by not asking in return only $ 1,000 as a deposit in good faith deposit that you are of course not obliged to keep ...
Uh ... It's not a little too good to be true? Well this is yet the way it negotiates the forex: Using leverage.
The amount of your leverage depends on your brooker and risks that you feel to. In general, the margin account or the initial margin is fixed in proportion to your deposit. Once you have deposited your money, you can directly use the levers and trader.
If the leverage is 100:1 (1% of the required position), and want to exchange a position worth $ 100,000, you will set aside $ 1,000, equivalent to the "margin".
If you can start with $ 5,000, you can trade up to $ 500,000 in Forex. The minimum security (margin) for each lot varies from a broker to another. In the example above, the Brooks requires a margin of one percent.
This means that for every $ 100,000 invested, the Brooke wants $ 1,000 as a down payment on the position.What is the Margin Call?
In the event that money in your account falls below margin requirements (usable margin), your brooker close some or all open positions. This will prevent your account from falling into a negative balance, even in this highly volatile market
Example # 1
Let's say you open a Forex account with $ 2,000 (not a good idea).
You open one standard lot (100,000 units) EUR / USD, with a margin requirement of $ 1,000. The margin is the money used to open new trades or losses.
Since you started with $ 2,000, your usable margin is $ 2,000.
But when you open a lot, which requires a margin requirement of $ 1,000, your usable margin decreased to $ 1,000 .. If your losses exceed your usable margin of $ 1,000, you will receive a margin call.
Example # 2
Let's say you open a regular account with $ 10,000 Forex.
You open 1 standard lot EUR / USD, with a margin requirement is $ 1,000. Remember, usable margin is the amount you have to open new trades. So before opening a lot, you have a usable margin of $ 10,000. After opening the trade, you have $ 9,000 usable margin and more than $ 1,000 in used margin. If your losses exceed your usable margin of $ 9,000, you will receive a margin call.
Make sure you know the difference between usable margin and margin used. If the equity (the value of your account) falls below your usable margin due to trading losses, you must either deposit more money or your brooker you close your position to limit your risks and risks ... .
As a result, you can never lose more than your deposit.
If you are trading with an account using the margin, it is essential that you know the policies of your brooker on them. You should also know that most brookers require a higher margin over the weekend. This can range up to 2%, aa monitor so if you take your starting position for the weekend!
The subject of the margin is a sensitive issue and some claim that playing with the margin is too dangerous. It all depends on the personality of the trader. The important thing is to understand the policies of your brooker on the margin and that you can manage the risks.
Some brookers describe their leverage in terms of leverage ratio and other in terms of percentage of the margin. The relationship between the two terms is as follows:
Leverage = 100 / margin percentage
Margin percentage = 100 / Leverage
The lever is usually stated as a ratio, eg 100:1 or 200:1.