Lots, Margins, Leverage and Pips


Today's lesson is an important one. After this lesson, we can look at practicals. So let's get started.


In the last lesson, we learned about currency pairs. The currency in front of a currency pair is called the base currency and the currency in the back is called quote currency. It can also be called counter currency.

Consider an example.

EUR / USD = 1.235

In here,

Base currency: EUR
Quote currency: USD

Okay now, let's see what "Lots" are. 


Imagine we go to the market and buy potatoes, so how do we get the potatoes? are we count potatoes? No, we buy potatoes per kg or g. Like that in the forex market, we say unit of currency is a "lot". "Lot" is called a standard lot. A lot is always 100,000.

There are lots of mini-lots, micro-lots, nano-lots like gram and kilogram.

Lot (Standard Lot)
100,000
Mini Lot
10,000
Micro Lot
1,000
Nano Lot
100


Now, what does it mean to buy a "EUR lot"? To buy a "EUR lot" means to buy EUR 100,000. So buying a "EUR mini lot" means buying EUR 10,000. I hope you guys understand "lots".

Consider an example.

EUR / USD = 1.255

How much USD is needed to buy a EUR lot?

USD amount = 1.255 * 100,000 = 125,500

You see, the amount of USD you want to buy a lot is too big.



This is where Leverage is needed.

Leverage is usually given in Forex. 100: 1, 400: 1.

In the above example, we will see how many USD is required if Leverage = 100: 1.

EUR / USD = 1.255

How much USD is needed to buy a EUR lot?

USD amount = 1.255 * 100,000 = 125,500



But because of leverage = 100: 1.

Required Number of USD = 125500/100 = 1255 USD


Now you understand the value of leverage.


Now let's see what margin and pips are


To trade with leverage known as margin trading. It is really like a deposit.


  • If the leverage is 100: 1, the margin is 1%.
  • If the leverage is 200: 1, the margin is 0.5%.
  • If the leverage is 400: 1, the margin is 0.25%.
  • If the leverage is 50: 1, the margin is 2%.


Consider an example.

If the margin is 1%,

EUR / USD = 1.2555
EUR mini lot = EUR 10,000


How much USD is needed to buy a Mini lot?

= 10,000 * 1%
= 10,000 * (1/100)

= 100


= 100 * 1.2555
= 125.55 USD

In the above example, our account is $ 125.55 less. We get it back when we close that trade. That means our forex account has USD 1000. After this trade, the balance will be (1000-125.55).

Well, let's see what pips are?

"Pips" are the price interest point. Pips are what we refer to as the fourth decimal point of a currency pair (this is the second decimal place of a currency pair in JPY), EUR / USD = 1.2453, and then EUR / USD = 1.2457. The difference between the two is 0.0004 These 4 decimal places we call pip. This means that in this example the EUR / USD rate is increased by 4 pips. A currency pair in front or behind JPY, Pip is a second decimal place change. In all other currency pairs, a pip is called a difference in the fourth decimal place.

Consider an example.

EUR / USD = 1.4350, how many pips is EUR / USD = 1.4358 after a few minutes?

Pips: 1.4358- 1.4350 = 0.0008
That means the EUR / USD rate has gone up by 8 pips.


EUR / USD = 1.2453, if the value declines by 20 pips. How much is EUR / USD now?

EUR / USD = 1.2453 - 0.0020 = 1.2433


GBP / JPY = 130.70, how many pips is GBP / JPY = 130.75 after a few minutes?

Pips = 130.75 - 130.70 = 0.05

That means the price of GBP / JPY has gone up by 5 pips.

Okay, let's see what a pipette is


The pipette is 1/10 of a pipette. For example, the price of EUR / USD increased from 1.21506 to 1.21507, which means that the price of EUR / USD increased by 1 pipette, or by 0.1 pip.


EUR / USD = 1.26157, after a while EUR / USD = 1.26169 What is the difference between the two prices?



Difference (number of pips) = 1.26169- 1.26157 = 0.00012 = 1.2 pips = 12 pipettes


In the next lesson, we will talk about how to open an account and start trading.

Comments

Post a Comment

Popular posts from this blog

Forex and Currency

Image
In the previous lesson, we talked about holding US dollars and selling them when the dollar rate goes up. In this example, two currencies were used, US dollars and the Srilankan rupees. In the forex market, the US dollar is known as the USD. Also, Srilankan Rupees know as LKR. From here on, I call the currency their short names. The main thing you need to understand here is that in a Forex trade, two currencies are always used. And the rate is shown as follows. USD / LKR = 170.87 This means to buy USD 1 you need 170.87 Srilankan rupees. Now that if you know the rates of both currencies, you can be able to make any calculation between them. Consider an example. USD / LKR = 109.15 How many dollars can you get for 250000 LKR? Make sure you slove this calculation before looking at the answer. USD Amount = 250000 / 109.15 = 2290.43 $ Now think how much rupees you can buy for $ 1340? LKR Number = 1340 * 109.15 = LKR 146261 I hope you are clear on this.
Read more

Let's learn Forex

Image
These days a lot of people have to stay at home because of corona issue. So people are interested in making money from the internet. So I thought I'd talk a little bit about forex. What's this forex? Forex is a high-profitable and high-risk financial investment method. Therefore, it is very important to get a good understanding of the basics here. This is called the forex market. It's like the share market, the stock market. It is also called the fx market and the currency market. When we say market, we are reminded of the market, the supermarket. If I ask you how people make money in the market, your answer is that they sell goods. So how to make money in the forex market? Let me tell you the answer. We are Sell ​​money to make money in the forex market. The word Forex is made up of the two words of foreign, exchange and shortened. Maybe now you have a little idea about how to sell money at the forex market. We first talked about how people at the market want
Read more