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example
If the EURUSD exchange rate was $1.30000, one standard lot of the base currency
(EUR) would be (100,000 x 1.3) = 130,000 units. This means, at the current price, you’d
need 130,000 units of the quote currency (USD) to buy 100,000 (units standard lot) of
EUR
pips
PIP = Percentage In Price or Price Interest Point.
A pip is the smallest whole unit price move that a currency pair can make
The Actual Profit Made depends on the LOTS used, and the PIPS gained.
If price goes to 1.30010 (1 pip move), then Contract Value = 100,000 EUR x 1.30010 =
130,010 USD
PIP Value for the price move will be = 130,010-130,000 = $10 USD
The Actual Profit made for the total move will be: Pip Value (LOTS x 10) x Pips Gained =
10 x 1pip = $10
leverage
Leverage in forex, allows traders to increase their market exposure beyond their initial
investment or deposit. And this is made possible because the broker loans you their money,
to be able to enter a position that big. This is because movements in the forex market are
very minute.
With Leverage, a trader can enter a position worth tens and hundred times more than their
actual money can afford.
However it is essential to know that when using leverage, not only profits get magnified but
losses also get magnified so it is important not to use too much leverage.
Example:
Leverage of ten-to-one (10:1) means that traders can gain exposure to a notional value or trade size,
ten times more than the deposit that is required to fund the trade.
10:1 ----------------- 10 times your deposit
100:1 ----------------- 100 times your deposit
1000:1 ----------------- 1000 times your deposit
Stoploss & takeprofit
STOPLOSS: A stop-loss is designed to let your broker know how
much you are willing to risk with your trade
Your broker has the responsibility to close your trade once your
stoploss or takeprofit is hit.