:34:How do you calculate how much money you can make off of a trade? An example would be awesome. I cannot this and its driving me up the chimney. What is a unit? What is a lot? How does unit or lot differ from standard account(im using in practice) to mini account( what I will most likely be using in 20 years when I make my account):34:
You’re asking some very basic questions.
I’ll give you some very basic answers — but you really need to go through The School of Pipsology
(more than once, if necessary), until these basics are planted firmly in your brain.
Okay. Quick answers to your questions (with your first question answered last) —
B[/B] What is a unit?
One unit of EUR/USD (for example) is €1 priced in U.S. dollars.
EUR/USD = 1.0800 (for example) means that €1 = $1.08 (that is, one EUR = 1.08 USD).
B[/B] What is a lot?
A lot is bunch of units.
Different writers/speakers use the word “lot” differently, so be sure that you know what’s meant when you hear the word “lot”.
The strict definition of “lot” is the so-called “standard lot” equal to 100,000 units of base currency. In the EUR/USD example above, one lot = 100,000 EUR = 108,000 USD.
Originally, when retail forex trading was introduced to average speculators, there were only standard lots. So, there was no confusion. Then, brokers began to divide standard lots into smaller bites — mini-lots (equal to 1/10 of a standard lot), micro-lots (equal to 1/10 of a mini-lot), and even at some brokers nano-lots (equal to 1/10 of a micro-lot). And sometimes when people say “lot”, they mean the mini-lots, or micro-lots, or nano-lots that they trade. Be careful of terminology.
So, to re-cap:
1 standard lot = 100,000 units of base currency (priced in terms of the quote currency)
1 mini-lot = 10,000 units of base currency
1 micro-lot = 1,000 units of base currency
1 nano-lot = 100 units of base currency
1 unit = 1 unit of base currency
B[/B] How does unit or lot differ from standard account…to mini account?
Units are units. They do not vary from one type of account to another.
Lots are defined in answer (2) above.
B[/B] How do you calculate how much money you can make off of a trade?
Four factors determine anticipated profit in a trade: (1) your entry price, (2) your take-profit (TP) price, (3) your position size (in units, or lots), and (4) the value of 1 pip expressed in your account currency.
Example: Let’s say you have an account denominated in USD (that is, you deposited U.S. dollars, and everything in your account is reported in dollars). And let’s say that you buy (go LONG) one standard lot of EUR/USD at the ASK price of 1.0800 and place a limit-order to take profit at a BID price of 1.0850.
In this trade, one pip is worth $10 per standard lot, $1 per mini-lot, $0.10 per micro-lot, and $0.01 per nano-lot. You are trading one standard lot, so in this trade, one pip of profit will earn $10 in your trade.
Obviously then, a 50-pip move (from 1.0800 to 1.0850) will earn $500.
The pip-value in this example ($10 per standard lot, etc.) is a nice round figure, because the quote currency in the pair you are trading (USD) matches your account currency (also USD). If you trade a pair with a quote currency that does not match your account currency (example: USD/CAD), you will need to find (or calculate) the current pip-value applicable to your trade. There are Pip-Value Calculators for this.
If you use a Position Size Calculator to determine how many lots (or units) you should trade, given a predetermined risk percentage, the Position Size Calculator will calculate the appropriate pip-value and factor it directly into the position-size calculation.
Just to repeat my first comment to you — study and master the School of Pipsology.
That’s where all the basics are covered.
You got some personal tutoring above. But, that was a one-time thing.
.
111,000 USD even. 
We are gaining again… 
Just go and sign up for Babypips school and start educating your self.
Hello Mr. Oanda,
let me expalin this with help of an example for the meaning of units, lots and profit calculations. lets take an example of EURUSD
the standard lot of eurusd has 100,000 units so unit is the one in which the quantity of the base currency is measured and lot contains a proper number of units of the currency. so in this case, 100,000 units constitutes 1 lot.
there is standard lot, mini lot and micro lot- standard lot has 100,000 units while mini lot has 10,000 units while micro lot has 1,000 units
now for calculation of profit- the profit is calculated as: P/L- commissions
Wow awesome, Thanks so much for the explanation.
Okay so long story short do I
Divide the price I am paying or borrowing at by pip(differs based on pair) and then multiply by number of units in the lot?
like
1.000(example price)/.0001(us pip) x 100000(standard lot size units)
or no then I will have to return at a later date to that section. Its literally blowing out my temporal bones.
Here is the sentence that’s causing your confusion.
(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]
We can rewrite (and simplify) that sentence, as follows:
Pip value (in terms of the base currency) = [.01 JPY] x [1 GBP/123.00 JPY]
There are two ways to solve this equation, according to the rules of algebra:
B[/B] We can first do the division indicated in the second term of the equation [1 GBP/123.00 JPY], and then multiply the result of this division by the first term in the equation.
The two steps would look like this — First step: [1 GBP/123.00 JPY] = 0.00813 GBP/JPY,
and then Second step: Pip value = [.01 JPY] x [0.00813 GBP/JPY] = [B]0.0000813 GBP.[/B]
B[/B] Or, we can use the rule in algebra which says that a string of multiplications and divisions can be performed in any order.
Using this rule, we simply do the multiplication first and then do the division, as follows:
Pip value = .01 JPY x 1 GBP ÷ 123.00 JPY = [B]0.0000813 GBP.[/B]
Same result, either way.
.
:D:D I finally get it . !!! Thanks so much !!!:D:D That is definitely the sentence that was not settling right in my bouncy house of a cerebrum.
I heard only a page ago in pip school that some pairs do not go out to the fourth decimal like how jpy I think it was goes out to the second decimal. Would the equation be the same in that instance, Does mt4 stretch the jpy price to the fourth decimal anyways? If this is too much questions I totally understand. You’ve done more than enough answering and I dont plan on even practice trading for so long that I have plenty of time to worry about that. I am glad that I understand what we’ve been talking about though now so I am not so worried about moving forward in pip school. I didnt mark these few pages as complete though so I remember to come back and look at them before moving back into my practice account.
Another related question that I have is on the figuring amount of margin required to make a trade. I may wait a few days to ask these questions unless I can get the answers on this same thread. Maybe the topic will be retouched on in the school.
For example, let’s say you open a mini account which provides a 200:1 leverage or 0.5% margin. Mini accounts trade mini lots. Let’s say one mini lot equals $10,000. If you were to open one mini-lot, instead of having to provide the full $10,000, you would only need $50 ($10,000 x 0.5% = $50)
-Taken Directly from Baby Pips on the Impress your Date with Forex Lingo page.
The only part that confuses me on the topic of margin is where they got the 0.5% from. I see that $50 is 1/200 of 10,000 but I am not so sure where the 0.5% came from.
I suppose these question won’t likely be the last questions that I have but I am not sure where else to ask these questions. If you have advice on where to ask the rest of these questions I would be grateful for that information as well.
Refer to the rewritten equation which I gave you in the previous post:
Pip value (in terms of the base currency) = [.01 JPY] x [1 GBP/123.00 JPY]
[B]Notice that this example is based on a [I][U]yen-pair[/U][/I].[/B] Therefore, JPY is the quote currency, as it is in every yen-pair (the JPY is never the base currency in any pair).
There are three quantities in that equation:
[B].01 JPY[/B] — for yen-pairs, this value will always be .01, regardless of whether yen-prices are quoted in 2 decimal places or 3 decimal places, because the numeral in the second decimal place is defined as 1 pip in yen pairs. (The numeral in the fourth decimal place is defined as 1 pip in all other pairs.)
[B]1 GBP[/B] — in all calculations, this value will always be ONE UNIT of the base currency (in the example given, the base currency happens to be GBP).
[B]123.00 JPY[/B] — in all calculations, you would use the price given in terms of the quote currency by your trading platform, whether that price is stated in 2 decimal places or 3 decimal places for a yen-pair, or in 4 decimal places or 5 decimal places for a non-yen pair.
In a price such as 123.45 for a yen-pair, the numeral 5 represents 5 pips. If the price were given as 123.456, the numerals 5 and 6 would represent 5.6 pips.
In a price such as 1.2345 for a non-yen pair, the numeral 5 represents 5 pips. If the price were given as 1.23456, the numerals 5 and 6 would represent 5.6 pips.
Yen-prices are quoted in either 2 decimal places or 3 decimal places (not 4 decimal places).
I hope that clears things up for you.
In [I]most[/I] retail forex accounts, there is a simple mathematical relationship between REQUIRED MARGIN and BROKER LEVERAGE (that is, maximum allowable leverage). The relationship is:
[B]Required margin = 1 ÷ broker leverage[/B]
In the example given, leverage = 200:1. So, 1 ÷ 200 = 0.005.
0.005 can be expressed as 0.5%
Therefore, 200:1 broker leverage corresponds to 0.5% required margin (in almost all retail accounts).
There is at least one broker who limits leverage to 500:1, but requires NO margin on retail trades (in accounts up to 100k). I don’t recommend this broker, so don’t ask. The point I’m trying to make is that margin doesn’t HAVE to be related to leverage, but it almost always is.
That absolutely cleared that up. Thanks very much! That information is priceless right now as I would’ve been super confused when I reach the how portion of the training. Next up in Pip School the differences between brokers and how to avoid the "evil ones.