Hi everyone,
New to the game here, learning loads.
Quick question, If I was buying Eur/Dollar and the amount I was buying was 2000 units - how much would that cost me?
Is it €2000 euros?
I’m a little confused over this.
Thanks for any help and advice 
[quote=“elasticc, post:1, topic:112098, full:true”]
If I was buying Eur/Dollar and the amount I was buying was 2000 units - how much would that cost me?
Is it €2000 euros? [/quote]
You aren’t “buying” euro, or the EUR/USD pair, or anything else for that matter. We’ll come back to this point in a moment.
When you enter a LONG position in EUR/USD (what we carelessly call “buying” EUR/USD), you are simply speculating that the price of EUR/USD will rise. If you’re right, and the price of the pair goes up, then you earn a profit. The amount of your profit depends on (1) how much the price of the EUR/USD pair went up, and (2) how big a pile of EUR/USD you were betting on.
In the example you cited in your question (long 2,000 units of EUR/USD), you are betting on a price rise in one unit of EUR/USD times 2,000 units.
You are not buying 2,000 euro, or anything else. In fact, in the retail forex market (our market), there is no buying or selling of anything, ever. Brokers don’t sell currencies, and they don’t do currency exchanges. They take your bets. They pay you, when you win. And they keep your money, when you lose.
In order for you to play this game, your broker will require you to post margin, which is a percentage of the total value of the pile of currency you are betting on. In the U.S., margin is dictated by the CFTC (the regulator of commodity and forex trading), and can be NOT LESS than 2% of the notional value of the trade.
In the case of your EUR/USD trade (long 2,000 units), if you were trading through a U.S. broker, the required margin would be 2% of the dollar-value of 2,000 euro. If the price of EUR/USD currently is 1.1800, that means that €1 = $1.18. So, obviously, €2,000 = $2,360. Therefore, the required margin (which you must have available in your account) would be 2% of $2,360, which equals $47.20.
That amount – $47.20 – is not your “cost” to “buy” anything. It is essentially a deposit which you must post in order to support the trade (the bet) that you are placing.
That is a great reply, thank you so much Clint, I’ve been reading about leverage this morning and learning about that so it’s all starting to tie in.
I’m going to need to re read your reply several times to really understand it but it’s getting there!
Where you said “In the example you cited in your question (long 2,000 units of EUR/USD), you are betting on a price rise in one unit of EUR/USD times 2,000 units” ----- So it’s like saying I think the Euro will rise against the dollar by 2000 units - E.g. - if the exchange rate was 1.5000 - I bet it will be 1.7000.
Am I right in thinking that?
Thanks for your time and help, very much appreciated.
The post of Clint is great indeed (as usual). However, I am afraid you really need to read it a couple more times 
It is meant that if you look at EURUSD as one unit and you believe that the price of it will rise and you are willing to bet 2000 times on that movement so if the price goes from 1.1800 to 1.2000 (which is huge movement of 200 pips by the way but we use it just for the example) you will gain 200 * 0.0200 = 4 USD
I hope it is more clear to you now but I am sure anyways that Client will get back to your question soon too
[quote=“elasticc, post:3, topic:112098, full:true”]
Where you said “In the example you cited in your question (long 2,000 units of EUR/USD), you are betting on a price rise in one unit of EUR/USD times 2,000 units” ----- So it’s like saying I think the Euro will rise against the dollar by 2000 units - E.g. - if the exchange rate was 1.5000 - I bet it will be 1.7000.
Am I right in thinking that? [/quote]
No, apparently I didn’t make it very clear. Let’s use an example.
Suppose your analysis leads you to conclude that the EUR/USD will rise in value. Let’s say it’s currently EUR/USD = 1.1800 (using round numbers and 5-digit pricing for convenience). And let’s say that you are considering two possible trades in your USD-denominated account:
(1) go long 1 unit of EUR/USD and (if your analysis is correct) collect your profit
(2) go long 2,000 units of EUR/USD and, again, collect your profit for being right
What would be the outcome of these two trades, if the price of EUR/USD rises by 50 pips to 1.1850 ?
We observe that 1 pip is 1/10,000 (that’s one ten-thousandth) of one USD. In numbers, that would be $0.0001. So, the two trades would produce profits, as follows:
(1) in trade #1, 1 pip is worth $0.0001 per unit, and 50 pips is worth $0.0001 x 50 = $0.005 (which is one-half of 1¢). That’s your profit on this one-unit trade, if EUR/USD rises by 50 pips, as you predicted. Half-a-cent profit is not worth your time to even bother with, is it?
So, what about trade #2?
(2) in trade #2, 1 pip is worth $0.0001 per unit of EUR/USD x 2,000 units in your trade, which equals $0.20 per pip. And 50 pips is worth $0.20 per pip x 50 pips = $10.
In trade #2, your profit is 2,000 times as large as in trade #1, because your position size is 2,000 times as large.
I hope that helps to clear things up for you.
Thanks Clint, that’s getting clearer now.
So, let’s say I’m betting the price of the Euro is going to go up compared to the dollar - it’s at 1.1600 when I enter and I go long for 3000. I set my Take Profit at 1.1650 - sure enough it hits 1.1650 - so I would presume -
I’m betting on micro lots so the pip value is 1/10,000 of a dollar - 0.0001 — x 3000 (my units I bet) = 0.3 x 50 (the number of pips it went up by) which equals a profit of $15.
Hope I got that right!
Yes sir! You got it absoulutely correct
EUR/USD is always $10 per pip per lot, and therefore $1 per pip per minilot, and therefore $0.10 per pip per microlot.
In your example you gained 50 pips at $0.10 per pip per microlot, so you make $5 per microlot you traded. You traded 3 microlots, so that’s $15 total, and you have it right.
I can’t explain it as well as Clint, though. Who can?
Hi Clint
Just need to clarify some parts , hope to dont mind that.
(2) in trade #2, 1 pip is worth $0.0001 per unit of EUR/USD x 2,000 units in your trade, which equals $0.20 per pip. And 50 pips is worth $0.20 per pip x 50 pips = $10.
So for example I went short on trade #2
Will I loose my margin ($47) + $10
Or just my margin ? or just $10 ?
Thank you in advance
Hello, perse15
You would not lose your margin, or any portion of it. Margin is like a good-faith deposit, or a performance bond, which supports your trade while it is open. When your trade is closed, your margin is released back to your control – that is, you can use it for other purposes or withdraw it.
If you hold a short position in trade #2 in the example, and if the price of EUR/USD moves up by 50 pips, and if your short position is closed at that point – then you would suffer a loss of $10.
Thanks for the info Clint !
Will it be possible to suffer a lost that is bigger than your margin?
Sure.
There is no mathematical relationship between the margin amount on any particular trade and the possible loss on that trade.
Example:
You have a $1,000 account with a U.S. broker. You open a 1-mini-lot LONG position in EUR/USD. You neglect to place a stop-loss on your position. EUR/USD moves down 250 pips, before you wake up and close your position manually.
Let’s compare the margin on this trade to the loss on this trade.
At today’s price of EUR/USD = 1.2000, the notional value of your position is $12,000 (10,000 units x $1.20 per unit). Therefore, required margin is $240 (2% of $12,000).
Pips are worth $1 each in your 1-mini-lot position. So, a 250-pip loss costs your account $250, which is more than the amount of your margin.
But, comparing margins to losses is like comparing apples to oranges. They are not related to each other.
Here’s how these amounts would be accounted for in your account.
As soon as you open your 1-mini-lot position, $240 of your account would be “set aside” as margin. Your broker might refer to this as “used margin”. This leaves $760 of “unused margin” (or “free margin”) in your account, available for your use. (You can use it to cover losses, to cover margin in additional positions, etc.)
When your 250-pip loss occurs, the unused margin in your account will be $510 ($760 - $250).
After you close your losing position, your $240 margin amount will be released back into your account. That will make your account balance $750 ($510 + $240).
Your margin is back in your account, and your balance has taken a $250 hit.
I hope that clears things up for you.