I have a question on lot pips and broker costs
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  1. #1
    Join Date
    Nov 2016
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    Default 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. #2
    Join Date
    Mar 2009
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    Quote Originally Posted by DRHANSSCHWANTZ View Post

    .....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.


    Quote Originally Posted by DRHANSSCHWANTZ View Post

    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.

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

  3. #3
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    Nov 2016
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    Thanks for the response!

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