What is Lot in Forex
In the past, spot forex was only traded in specific amounts called lots. The standard size for a lot is 100,000 units. There are also a mini, micro, and nano lot sizes that are 10,000, 1,000, and 100 units respectively.
|Lot||Number of Units|
As you may already know, the change in currency value relative to another is measured in “pips,” which is a very, very small percentage of a unit of currency’s value. To take advantage of this minute change in value, you need to trade large amounts of a particular currency in order to see any significant profit or loss.
Let’s assume we will be using a 100,000 unit (standard) lot size. We will now recalculate some examples to see how it affects the pip value.
- USD/JPY at an 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 pip
In cases where the U.S. dollar is not quoted first, the formula is slightly different.
- EUR/USD at an 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 at an 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 broker may have a different convention for calculating pip value relative to lot size but whichever way they do it, they’ll be able to tell you what the pip value is for the currency you are trading is at the particular time. As the market moves, so will the pip value depending on what currency you are currently trading.
What the heck is leverage?
You are probably wondering how a small investor like yourself can trade such large amounts of money. Think of your broker as a bank who basically fronts you $100,000 to buy currencies. All the bank asks from you is that you give it $1,000 as a good faith deposit, which he will hold for you but not necessarily keep. Sounds too good to be true? This is how forex trading using leverage works.
The amount of leverage you use will depend on your broker and what you feel comfortable with.
Typically the broker will require a trade deposit, also known as “account margin” or “initial margin.” Once you have deposited your money you will then be able to trade. The broker will also specify how much they require per position (lot) traded.
For example, if the allowed leverage is 100:1 (or 1% of position required), and you wanted to trade a position worth $100,000, but you only have $5,000 in your account. No problem as your broker would set aside $1,000 as down payment, or the “margin,” and let you “borrow” the rest. Of course, any losses or gains will be deducted or added to the remaining cash balance in your account.
The minimum security (margin) for each lot will vary from broker to broker. In the example above, the broker required a one percent margin. This means that for every $100,000 traded, the broker wants $1,000 as a deposit on the position.
How the heck do I calculate profit and loss?
So now that you know how to calculate pip value and leverage, let’s look at how you calculate your profit or loss.
Let’s buy U.S. dollars and Sell Swiss francs.
- The rate you are quoted is 1.4525 / 1.4530. Because you are buying U.S. dollars you will be working on the “ask” price of 1.4530, or the rate at which traders are prepared to sell.
- So you buy 1 standard lot (100,000 units) at 1.4530.
- A few hours later, the price moves to 1.4550 and you decide to close your trade.
- The new quote for USD/CHF is 1.4550 / 1.4555. Since you’re closing your trade and you initially bought to enter the trade, you now sell in order to close the trade so you must take the “bid” price of 1.4550. The price traders are prepared to buy at.
- The difference between 1.4530 and 1.4550 is .0020 or 20 pips.
- Using our formula from before, we now have (.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 subject to the spread in the bid/offer quote. When you buy a currency, you will use the offer or ask price and when you sell, you will use the bid price.
Next up, we’ll give you a roundup of the freshest forex lingos you’ve learned!
在过去，外汇现货市场是以“手Lots”作为基本合约，来进行交易。一手的标准大小是100,000 单位。当然现在还有“迷你手Mini Lot”，“微型手Micro Lot”和“毫微手Nano Lot”，它们的大小分别是10,000，1,000和100 单位。
1. 美元/日元的汇率为119.80（0.01 / 119.80）× 100,000 = $ 8.34 /点
2. 美元/瑞士法郎的汇率为1.4555（0.0001 / 1.4555）× 100,000 =$ 6.87 /点在报价的基础货币不是美元时，公式会略有不同。
1. 欧元/美元的汇率为1.1930（0.0001 / 1.1930）× 100,000 = 8.38
x 1.1930 =$ 9.99734 进位为 $ 10 /点
2. 英镑/美元的汇率为 1.8040（0.0001 / 1.8040）× 100,000 = 5.54
x 1.8040 =$ 9.99416 进位为 $ 10 /点
4. 这时美元/瑞郎的新报价为1.4550 / 1.4555。现在你要关闭你的仓位，而当初是买进了货币而开启的仓位。你现在需要卖掉货币才能关闭仓位，所以你必须“标上”1.4550的卖出价。这是多数交易者们会买进的价位。
6. 使用我们之前的公式，我们现在有（.0001/1.4550）× 100,000 = 6.87美元/点子×20点子=137.40美元
What is pips in Forex
Here is where we’re going to do a little math. You’ve probably heard of the terms “pips,” “pipettes,” and “lots” thrown around, and here we’re going to explain what they are and show you how their values are calculated.
Take your time with this information, as it is required knowledge for all forex traders. Don’t even think about trading until you are comfortable with pip values and calculating profit and loss.
What the heck is a Pip? What about a Pipette?
The unit of measurement to express the change in value between two currencies is called a “pip.” If EUR/USD moves from 1.2250 to 1.2251, that .0001 USD rise in value is ONE PIP. A pip is usually the last decimal place of a quotation. Most pairs go out to 4 decimal places, but there are some exceptions like Japanese Yen pairs (they go out to two decimal places).
Very Important: There are brokers that quote currency pairs beyond the standard “4 and 2″ decimal places to “5 and 3″ decimal places. They are quoting FRACTIONAL PIPS, also called “pipettes.” For instance, if GBP/USD moves from 1.51542 to 1.51543, that .00001 USD move higher is ONE PIPETTE.
As each currency has its own relative value, it’s necessary to calculate the value of a pip for that particular currency pair. In the following example, we will use a quote with 4 decimal places. For the purpose of better explaining the calculations, exchange rates will be expressed as a ratio (i.e., EUR/USD at 1.2500 will be written as “1 EUR/ 1.2500 USD”)
Example exchange rate ratio: USD/CAD = 1.0200. To be read as 1 USD to 1.0200 CAD (or 1 USD/1.0200 CAD)
(The value change in counter currency) times the exchange rate ratio = pip value (in terms of the base currency)
[.0001 CAD] x [1 USD/1.0200 CAD]
[(.0001 CAD) / (1.0200 CAD)] x 1 USD = 0.00009804 USD per unit traded
Using this example, if we traded 10,000 units of USD/CAD, then a one pip change to the exchange rate would be approximately a 0.98 USD change in the position value (10,000 units x 0.0000984 USD/unit). (We use “approximately” because as the exchange rate changes, so does the value of each pip move)
Here’s another example using a currency pair with the Japanese Yen as the counter currency.
GBP/JPY at 123.00
Notice that this currency pair only goes to two decimal places to measure a 1 pip change in value (most of the other currencies have four decimal places). In this case, a one pip move would be .01 JPY.
(The value change in counter currency) times the exchange rate ratio = pip value (in terms of the base currency)[.01 JPY] x [1 GBP/123.00 JPY]
[(.01 JPY) / (123.00 JPY)] x 1 GBP = 0.0000813 GBP
So, when trading 10,000 units of GBP/JPY, each pip change in value is worth approximately 0.813 GBP.
Finding the Pip Value in your Account Denomination
Now, the final question to ask when figuring out the pip value of your position is, “what is the pip value in terms of my account currency?” After all, it is a global market and not everyone has their account denominated in the same currency. This means that the pip value will have to be translated to whatever currency our account may be traded in.
This calculation is probably the easiest of all; simply multiply/divide the “found pip value” by the exchange rate of your account currency and the currency in question.
If the “found pip value” currency is the same currency as the base currency in the exchange rate quote:
Using the GBP/JPY example above, let’s convert the found pip value of .813 GBP to the pip value in USD by using GBP/USD at 1.5590 as our exchange rate ratio. If the currency you are converting to is the counter currency of the exchange rate, all you have to do is divide the “found pip value” by the corresponding exchange rate ratio:
.813 GBP per pip / (1 GBP/1.5590 USD)Or
[(.813 GBP) / (1 GBP)] x (1.5590 USD) = 1.2674 USD per pip move
So, for every .01 pip move in GBP/JPY, the value of a 10,000 unit position changes by approximately 1.27 USD.
If the currency you are converting to is the base currency of the conversion exchange rate ratio, then multiply the “found pip value” by the conversion exchange rate ratio.
Using our USD/CAD example above, we want to find the pip value of .98 USD in New Zealand Dollars. We’ll use .7900 as our conversion exchange rate ratio:
0.98 USD per pip X (1 NZD/.7900 USD)Or
[(0.98 USD) / (.7900 USD)] x (1 NZD) = 1.2405 NZD per pip move
For every .0001 pip move in USD/CAD from the example above, your 10,000 unit position changes in value by approximately 1.24 NZD.
Even though you’re now a math genius–at least with pip values–you’re probably rolling your eyes back and thinking, “Do I really need to work all this out?” Well, the answer is a big fat NO. Nearly all forex brokers will work all this out for you automatically, but it’s always good for you to know how they work it out.
If your broker doesn’t happen to do this, don’t worry – you can use our Pip Value Calculator! Aren’t we awesome?
In the next section, we will discuss how these seemingly insignificant amounts can add up.
我们将在这里做一些小算数。您可能已经听说过这些字眼“点 pips”，“十分之一点pipettes”和“手数 lots”。接下来在这里，我们将解释它们是什么，并示范如何计算它们出来的。
花点时间慢慢掌握下面的这些信息，因为它是所有外汇交易者必须知道的常识。在你能够灵活自如的运用点值 和 计算盈亏之前，你最好不要去想交易的事。
用来衡量两种货币之间，汇率变化的基本单位就称为“点 Pip”。如果 欧元/美元 从1.2250升至1.2251，这就是一个点的变动。 点值是从外汇报价的最后一个小数位算起，如果是 非日元的货币对，一般有四个小数位。如果是 含日元的货币对，那么它的货币报价应该只有两个小数位。
非常重要： 有些经纪商的报价，货币对汇率的小数位 超出标准的“4和2”达到“5和3”小数位。他们就用 小数点(FRACTIONAL PIPS) 来报价 ，也称为十分之一点(pipettes)。例如，如果英镑/美元 从1.51542 升至 1.51543，它移动了 0.1点(ONE PIPETTE)。
先以 基础货币为美元，的货币对 为例子，计算方法为：
1. 美元/瑞郎 汇率为 1.5250
0.0001除以 汇率 = 点的价值
0.0001 / 1.5250 = $ 0.0000655
2. 美元/加元 汇率为1.4890
0.0001 / 1.4890 = $ 0.00006715
3. 美元/日元 汇率为119.80
0.01 / 119.80 = $ 0.0000834
在不是以 基础货币为美元的例子，我们希望得到美元的 1个点数价值，就必须增加一个步骤。
1. 欧元/美元 的汇率为 1.2200
因此 0.0001 / 1.2200 = 0.00008196欧元
欧元价值 x 汇率
所以 0.00008196 x 1.2200 = $ 0.00009999
2. 英镑/美元 的汇率为 1.7975
因此 0.0001 / 1.7975 = 0.0000556英镑
英镑价值 x 汇率
所以 0.0000556 x 1.7975 = $ 0.0000998
你可能会睁大眼睛的看着上面的计算过程，同时纳闷“难道我真的需要亲自动手来计算这些东西吗？” 嗯，答案是一个大大肥肥的 不 。几乎所有的外汇交易商将自动为你算出这些答案，但你知道怎么把它们计算出来总是有好处的。
What is Leverage
We know we’ve tackled this before, but this topic is so important, we felt the need to discuss it again.
The textbook definition of “leverage” is having the ability to control a large amount of money using none or very little of your own money and borrowing the rest.
For example, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios, is now 100:1.
You’re now controlling $100,000 with $1,000.
Let’s say the $100,000 investment rises in value to $101,000 or $1,000. If you had to come up with the entire $100,000 capital yourself, your return would be a puny 1% ($1,000 gain / $100,000 initial investment).
This is also called 1:1 leverage. Of course, I think 1:1 leverage is a misnomer because if you have to come up with the entire amount you’re trying to control, where is the leverage in that?
Fortunately, you’re not leveraged 1:1, you’re leveraged 100:1. The broker only had to put aside $1,000 of your money, so your return is a groovy 100% ($1,000 gain / $1,000 initial investment).
Now we want you to do a quick exercise. Calculate what your return would be if you lost $1,000.
If you calculated it the same way we did, which is also called the correct way, you would have ended up with a -1% return using 1:1 leverage and a WTF! -100% return using 100:1 leverage.
You’ve probably heard the good ol’ clichés like “Leverage is a double-edged sword.” or “Leverage is a two-way street.” As you can see, these clichés weren’t lying.
What is margin?
So what about the term “margin”? Excellent question.
Let’s go back to the earlier example:
For example, in forex, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios, is now 100:1. You’re now controlling $100,000 with $1,000.
The $1,000 deposit is “margin” you had to give in order to use leverage.
Margin is the amount of money needed as a “good faith deposit” to open a position with your broker. It is used by your broker to maintain your position. Your broker basically takes your margin deposit and pools them with everyone else’s margin deposits, and uses this one “super margin deposit” to be able to place trades within the interbank network.
Margin is usually expressed as a percentage of the full amount of the position. For example, most forex brokers say they require 2%, 1%, .5% or .25% margin.
Based on the margin required by your broker, you can calculate the maximum leverage you can wield with your trading account.
If your broker requires 2% margin, you have a leverage of 50:1. Here are the other popular leverage “flavors” most brokers offer:
|Margin Required||Maximum Leverage|
Aside from “margin required”, you will probably see other “margin” terms in your trading platform. There is much confusion about what these different “margins” mean so we will try our best to define each term:
Margin required: This is an easy one because we just talked about it. It is the amount of money your broker requires from you to open a position. It is expressed in percentages.
Account margin: This is just another phrase for your trading bankroll. It’s the total amount of money you have in your trading account.
Used margin: The amount of money that your broker has “locked up” to keep your current positions open. While this money is still yours, you can’t touch it until your broker gives it back to you either when you close your current positions or when you receive a margin call.
Usable margin: This is the money in your account that is available to open new positions.
Margin call: You get this when the amount of money in your account cannot cover your possible loss. It happens when your equity falls below your used margin. If a margin call occurs, some or all open positions will be closed by the broker at the market price.
What is Spread
- Spreads are based off the Buy and Sell price of a currency pair.
- Costs are based off of spreads and lot size.
- Spreads are variable and should be referenced from your trading software.
Every market has a spread and so does Forex. It is imperative that new Forex traders become familiar with spreads as this is the primary cost of trading between currencies.
Today we will review the basics of reading a spread and what the spread tells us in regards to the costs of our transaction.
Spreads and Forex
Every market has a spread and so does Forex. A spread is simply defined as the price difference between where a trader may purchase or sell an underlying asset. Traders that are familiar with equities will synonymously call this the Bid: Ask spread.
Below we can see an example of the spread being calculated for the EURUSD. First we will find the buy price at 1.35640 and then subtract the sell price of 1.32626. What we are left with after this process is a reading of .00014. Traders should remember that the pip value is then identified on the EURUSD as the 4th digit after the decimal, making the final spread calculated as 1.4 pips.
Now we know how to calculate the spread in pips, let’s look at the actual cost incurred by traders.
Spreads Costs and Calculations
Since the spread is just a number, we now need to know how to relate the spread into Dollars and Cents. The good news is if you can find the spread, finding this figure is very mathematically straight forward once you have identified pip cost and the number of lots you are trading.
Using the quotes above, we know we can currently buy the EURUSD at 1.3564 and close the transaction at a sell price of 1.35474.That means as soon as our trade is open, a trader would incur 1.4 pips of spread. To find the total cost, we will now need to multiply this value by pip cost while considering the total amount of lots traded. When trading a 10k EURUSD lot with a $1 pip cost, you would incur a total cost of $1.40 on this transaction.
Remember, pip cost is exponential. This means you will need to multiply this value based off of the number of lots you are trading. As the size of your positions increase, so will the cost incurred from the spread.
Changes in the Spread
It is important to remember that spreads are variable meaning they will not always remain the same and will change sporadically. These changes are based off of liquidity, which may differ based off of market conditions and upcoming economic data. To reference current spread rates, always reference your trading platform. However, to help you get an idea of past average spreads for pairs traded at FXCM, see the referenced hyperlink HERE.
买价 – 卖价 = 点差
0.93865 – 0.93860 = 0.00005 或 0.5 个点