There are so many concepts in ithandel! Novice traders can easily become overwhelmed by all these options. We have prepared a universal guide to the most important trading definitions and their application so that you have sufficient confidence in Forex.
What is a mass and its size?
Everything is simple. Amassaare just a few currencies. Knowsize of a massPlease understand that a standard lot is equivalent to 100,000 base or account currency units.
In addition to a standard batch, there are two more types: mini and micro. A mini lot corresponds to 10,000 units, while micro - 1,000 units. Before you open a trade, you need to decide how much money you can spend.
Lot size | Units | Tie |
Standard | 100.000 | 1 |
Mini | 10.000 | 0,1 |
Micro | 1.000 | 0,01 |
When you open an order in MetaTrader, you must select the size or 'volume' of your trade. Where '1.0' stands for one standard batch. The minimum size of a transaction is 0.01 lot (i.e. a micro lot).
In addition to many, while trading you may encounter terms such asaccelerationand a point.
What is leverage in trading?
You already knew that you need 100,000 euros to trade a lot of EURUSD. It could involve a large sum of money. However, you don't have to invest all this money yourself; you can borrow it from your broker. A Forex broker suggests a way to profit from Forex –acceleration.
Leverage is debt for an investment provided by a broker. It helps increase the return on a transaction. For trading with a standard lot without leverage, the deposit must be equal to 100,000 euros. With the leverage of 1:100 you only have to give up 1% of the order size: you only have to deposit 1000 euros and the broker will cover the rest.
Since the smallest trade you can make is a trade with a volume of 0.01 (1000 euros), with a leverage of 1:100 you only need to spend 10 euros for this trade. With a leverage of 1:000, 1 euro is sufficient to open the transaction.
The amount of leverage usually depends on the broker of your choice. Billaccelerationfrom the FBS broker to know your potential.
What are the points in Forex?
A point is a well-known concept in trading. You can see it in different waysanalytical articlesespecially when it comes to couples that are rising or falling.
One point is the minimumvalue pairchange. It helps to count the amount a trader can make from trading.
To be clear, the USDJPY is quoted as 109,700. The last decimal point of the price or offer is a period. When USDJPY changes from 109,700 to 109,850, the change is 150 points.
To count a point, look at the exchange rate of the pair.
View the counting process for one standard lot of USDJPY (volume = 1.0):
0.001 (one point in decimal form) / 110.80 (one exchange rate) * 100,000 (one standard lot) = $0.903 per point
If you trade with a mini lot (volume = 0.1), the value of a point changes for you:
0.001 (one point in decimal form) / 110.80 (one exchange rate) * 10,000 (one minilot) = $0.0903 per point
For a micro lot the calculation is as follows:
0.001 (one point in decimal form) / 110.80 (one exchange rate) * 1,000 (one microlot) = $0.00903 per point
Let's count a point for EURUSD, where the USD is not a base, but oneoffering coin:
0.00001 (one point in decimal form) / 1 (one exchange rate) * 100,000 (one standard lot) = $1 per point
Point values made simple
In many cases, you don't need to do any calculations to estimate a point value. Please note that if your account is funded in USD, the point values are fixed and do not change when USD is second in a pair: $1 for a standard lot, $0.1 for a mini lot and $0.01 for a microlot. For example, these point values apply to EURUSD, GBPUSD, AUDUSD and NZDUSD. If USD is not listed as the second number, divide the point values above by the USDXXX exchange rate.
To get the point value of a standard lot for USDCHF when trading on a USD account, divide 1 USD by the USDCHF rate. If the USDCHF rate is 0.9700, the default lot point value is $1.03 or $1 divided by 0.9700.
Generally, point values are fixed regardless of the currency the account is funded in, when that currency is listed second in a pair. In other words, the second currency gives the point value.
What is the relationship between game, points and leverage
To be able to use your knowledge in practice, you need to know how all these concepts are related. The most important things for a trader are of course:
- How much profit will they make on a transaction that counts in their account currency?
- How much money do they need for shopping?with such profit potential?
To calculate the possible outcome of EURUSD trading with 1:100 leverage, you will need the following information:
Imagine you are trading the EURUSD pair with a lot size of 100,000. You deposited $1,000. Your leverage is 1:100. You made a long trade at 1.15000, the pair went up and you closed your position at 1.15500. This means you have earned 500 points.
- A buy trade starts at 1.15000 for EURUSD and a lot size is 100,000.
- One point is $1, because your trading volume is 1.0 (a standard lot).
- The position closes at 1.15500. As a result you have 500 points.
- 500 points will give you a profit of $500.
If you trade without leverage and deposit $1,000 (i.e. you open a 0.01 lot position), 1 point will get you 100 times less: $0.01 instead of $1. As a result, when trading with microlots, 500 points will earn you $5.
There is basic information about lottery tickets, points and leverage. You have everything and can start practicing.Open an accountwith FBS and don't waste your time!
FBS-analystteam
More from this author
04-03-2024 • Updated
Other articles in this section
- Financial calendar: how to read and use it
- How do you open and close a trade in MetaTrader?
- How much do you need to start trading Forex?
- Forex Demo-konto
- How to determine position size?
- Leverage and Margin: How to Use Them in Forex Trading?
- What are rollover and swap and how do you use them in trading?
- Types of trading orders: Market, Limit, Stop, Trailing Stop, Stop-Limit
- When is the Forex market open?
- What are bid, ask and spread?
- Calculation of profit
- How to behave?
- Currency pairs and forex trading
- What software do you need to trade?
- Benefits and risks of forex trading
- What is Forex Trading?
