To calculate the value of 1 pip in this particular trade, use the Babypips calculator.
Start at the top of this page, and click on Tools.
[B]Tools > Forex Calculators > Pip Value Calculator[/B]
When you have the Calculator on your screen, enter:
Currency pair — [B]EUR/USD[/B]
Position size — [B]5000[/B] (this means 5,000 units of base currency = 5 micro-lots)
Ask price — [B]1.27243[/B]
Value in — [B]EUR[/B]
Hit calculate, and you get the answer: [B]pip value = €0.3929[/B]
Your profit in pips was [B]12½ pips[/B] (not 12 pips, as you stated)
Your total profit on this trade, in euro, was 12½ pips x €0.3929 per pip = [B]€4.91 [/B] — In your post, that figure is correct.
(I don’t know where you got the 120 pips figure, or the €44.96 figure.)
Regarding the actual leverage used in this trade, [B]divide €5,000 by your account balance (in euro).[/B]
If your account balance, when you entered this trade, was €753 (as an example), then you used actual leverage of
5000 ÷ 753 = 6.64:1
Well, the calculation is correct, but the result is meaningless.
Leverage comes into play when you enter a position that is [B]larger in value[/B] than your account balance. If your account balance is €10,000, then any position size larger than €10,000 involves the use of leverage.
If you enter a position [B]equal in value[/B] to the size of your account, then you are using your entire account, but you are using [B]no leverage.[/B] You could do the math: €5,000 ÷ €5,000 = 1 (meaning 1:1 leverage), but that calculation is meaningless.
If you enter a position [B]smaller in value[/B] than your account balance, then you are using less than your entire account, and again you are using [B]no leverage.[/B] In your example, €5,000 ÷ €10,000 = 0.5 (meaning 0.5:1 leverage), but again this result is meaningless.
So if I have ‘leverage’ of 1:0.5, that’ll mean I need 200k to open a standard lot … like, I’m leveraging out my money instead of using the broker’s, for a change.
While I like my broker, there are limits to my affection.
Okay, before anybody takes this seriously: obviously the minimum ‘leverage’ is 1:1, meaning one isn’t using any leverage at all.
Clint, that last line of your post ‘made my day’ at 8am.