I have a question on lot pips and broker costs

# Thread: I have a question on lot pips and broker costs

1. Newbie
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Nov 2016
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## I have a question on lot pips and broker costs

Greetings

I need verification if I am correct on this:

Assumption 1: Let us say I open two mini lot trading positions and we also assume that the pip value is \$1.00 per pip (EUR/USD for this example) so the value will be +/- 2.00 per pip. Now if I assume a +100 pip profit on the two lots this would be a \$200 (USD) profit. If I now were to close one of the lots and let the other ride the trend, then each pip in the remaining lot open would be valued at \$1.00 the rest of the way. Further I close the second at a 50 pip profit, and so my total gross profit is 100*2.00 on the first take profit and 50*1.00 on the second take profit, equaling \$250 gross profit. Is this assumption correct?

Assumption 2: If I trade smaller lots (a micro account as opposed to a regular lot), will the broker transaction costs be reduced accordingly? In other words if the spread is normally 5 pips as a transactions cost for a regular lot, will the transactions costs be reduced accordingly to the smaller size trade? Example 5 pips would be 50 dollars in this example for a regular lot trade, and if I trade a micro lot which is 1/10th of 1/10th the size of regular lot would the transaction cost be 1/10th *1/10th * 50 = .50

Appreciate your help in this inquiry!

2. Originally Posted by DRHANSSCHWANTZ

.....so my total gross profit is 100*2.00 on the first take profit and 50*1.00 on the second take profit, equaling \$250 gross profit. Is this assumption correct?
Yes, you are correct.

Originally Posted by DRHANSSCHWANTZ

If I trade smaller lots (a micro account as opposed to a regular lot), will the broker transaction costs be reduced accordingly?
Not only the transaction costs, but also profits and/or losses, when converted from pips to dollars.

Example: You trade one micro-lot of EUR/USD in a USD-denominated account. Pips are worth \$0.10 each in this trade. So, if you earn a 100 pip profit, your profit (in dollars) is 100 x \$0.10 = \$10.

If you took a loss instead, then the loss would likewise be the number of pips of loss x \$0.10.

And, if the spread is 5 pips, as in your example, then at the moment when you entered your trade, you would start off with a "loss" of 5 pips x \$0.10 = \$0.50

Regarding terminology: There is no such thing as a "regular" lot.

A lot is 100,000 units of the base currency in the pair you are trading (100,000 EUR, if you're trading EUR/USD).

Ever since fractional lots were introduced into retail forex trading many years ago, it has been common to refer to a lot as a standard lot, to distinguish it from any of the fractional lots.

Fractional lots are mini-lots (10,000 units), micro-lots (1,000 units) and nano-lots (100 units).

If the quote currency in the pair you are trading matches your account currency (example: trading EUR/USD in a USD account), then pip-values are as follows:

trading a standard lot, 1 pip is worth 10 units of the account currency

trading a mini-lot, 1 pip is worth 1 unit of the account currency

trading a micro-lot, 1 pip is worth 1/10 of a unit of the account currency

trading a nano-lot, 1 pip is worth 1/100 of a unit of the account currency

In the case of a EUR/USD trade in a USD-denominated account, pip-values would be:

\$10 per pip, if you are trading a standard lot

\$1 per pip, if you are trading a mini-lot

\$0.10 per pip, if you are trading a micro-lot

\$0.01 per pip, if you are trading a nano-lot

In an account where you can trade individual units of currency (Oanda, for example), the pip-value for a 1-unit trade in EUR/USD, assuming your account currency is USD, would be 1/100 of 1 cent per pip.

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Last edited by Clint; 11-22-2016 at 03:51 AM. Reason: to fix a typo

3. Newbie
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Nov 2016
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Thanks for the response!