Pardon me all for showing off my ignorance here. I read on one website that the following lot size applied to usd pairs
1 lot = 100k (100,000 units)
0.1 = 10k (10,000 unit)
0.01 = 1k (1,000 units)
In the above post, it is said that 0.1 lots means $1.0 (HOW?) Different brokers have away of expressing lot sizes…some will express it as 0.1 as against 1.0 and so on. What the difference.
Assuming I enter a trade with $150 on micro account with a lot size of 0.01 OR 0.1 on the following trade:
BUY EUR/USD 1.26350
Take profit 1.26700
Stop lost 1.26000
Then, this trade went against me.
What will be my total lost?
What is the minimum/maximum leverage to use here. I look forward to your response.
[I]1. What will be my total lost?[/I]
Lot size of 0.01 on a micro account = 0.01 x $ 1,000 = $10
$10 x .0001 = $0.001/pip
35 pips x $0.001/pip = $0.0035 loss
Lot size of 0.1 on a micro account = 0.1 x $ 1,000 = $100
$100 x .0001 = $0.01/pip
35 pips x $0.01/pip = $0.035 loss
[I]2. What is the minimum/maximum leverage to use here.[/I]
You don’t need any leverage if you’re trading 0.01 or 0.1 micro-lots with $150.
Actually, the way you have listed them, those lot sizes apply to every currency pair.
One standard lot of any currency pair is defined as 100,000 units of the base currency in the pair. For USD pairs in which the USD is the base currency (USD/JPY, for example), the notional value of one standard lot would be $100,000. For EUR pairs (all of them), the notional value of one standard lot would be €100,000. And so forth.
One mini-lot = 10,000 units of base currency = 0.1 standard lot
One micro-lot = 1,000 units of base currency = 0.1 mini-lot = 0.01 standard lot
No, it says that 0.1 lot is $1 [B]per pip[/B] for USD pairs.
He should have said that 0.1 lot is $1 per pip [B]for pairs having the USD as the cross-currency.[/B]
If you trade a 0.1 lot position in a currency pair having the USD as its cross-currency (EUR/USD, for example), then one pip of profit or loss will equate to $1 of profit or loss in your position.
If you need further explanation of this, write back and ask.
[B]1.[/B] If your position is stopped out, your loss will be 35 pips.
If your position size is 0.01 standard lot (that is, one micro-lot = 1,000 units of currency), then your loss will be
35 pips x $0.10 per pip = $3.50
If your position size is 0.1 standard lot (that is, one mini-lot = 10,000 units of currency), then your loss will be
35 pips x $1 per pip = $35.00
[B]2.[/B] I don’t know what you mean by “minimum/maximum leverage to use”.
If your account balance is $150 and you open a 1-micro-lot position (1,000 units of EUR), then the notional value of your position is €1,000 which equals $1,263.50 at your entry price. The actual leverage you are using in this trade is
$1,263.50 ÷ $150 = 8.42:1 — [B]call it 8.5:1 — or, call it [I]excessive[/I] for a newbie.[/B] Edit: See below.
If your account balance is $150 and you open a 1-mini-lot position (10,000 units of EUR), then the notional value of your position is €10,000 which equals $12,635 at your entry price. The actual leverage you are using in this trade is
$12,635 ÷ $150 = 84.2:1 — [B]call it 85:1 — actually, call it [I]foolhardy.[/I][/B]
Edit: I was a bit hasty in labeling the actual leverage used in that trade as “excessive”. On second thought, that trade is reasonable (as far as money management is concerned).
Actual leverage used is not what matters. Risk is what matters. And your risk in this 1-micro-lot trade with a 35-pip SL is acceptable. Total risk of $3.50 in a $150 account represents a [B]risk percentage of 2.33%,[/B] which is just slightly over the 2% limit we usually suggest.
As an exercise, figure the risk percentage on the second trade in your example (the one involving one mini-lot).
Aww…so now we have seen an increase in your friends account from $50 to $150!
And yes, Clint is correct, I should have wrote USD as the ‘cross-currency’, thus the the second currency in the quoted pair.
Sometimes I forget that writing in short hand, or just being lazy, is not so helpful in a ‘help me’ thread!
I’m sure Clint has tied up my loose ends from my previous post.
Exactly my thought. Honestly speaking, your entire explanation is one of the best I have had in forex trading. Could this be why I was confused in my thread here 301 Moved Permanently.
If you need further explanation of this, write back
But what if the currency is not having USD as a cross-currency? Example (USD/EUR, USD/GBP). What’s likely my fate in such scenario? Thanks
The problem with trading a large position in a tiny account is the [B]size of the bite[/B] that will be taken out of your account, if the position goes bad. In order to calculate the size of that bite, you have to know (or be able to figure) the size of your SL in pips, and the dollar-value of one pip. Those two numbers determine the size of your potential loss, in dollars.
Then, you divide that potential dollar loss by your account balance to determine the percentage risk represented by this position. Deciding what is a reasonable risk to take is a matter of judgement; but, most experienced traders will tell you to control your potential losses so that they stay in the 1%-2% range.
If any of this was unclear to you before, then that may have been the cause of your confusion.
In this case, you have 3 choices:
• If you love to do math on your pocket calculator, then you can calculate pip-values by hand. Or…
• You can use one of several handy-dandy Pip-Value Calculators available on the internet. I recommend the Babypips Pip-Value Calculator, which you can find here. Or…
• Your broker’s trading platform likely will give you the pip-value for every pair in the platform. You will probably find that information in the same block of info where your pair’s BID and ASK price, and daily roll-over rates, are listed.
If you choose to use the Pip-Value Calculator, here’s how you would proceed. Let’s say that you have a USD-denominated account, you want to trade 3 micro-lots of EUR/JPY, the current ASK price for the EUR/JPY is 99.907, and the current price for the USD/JPY is 79.035
You would enter data into the Pip-Value Calculator this way:
• Currency pair: [B]EUR/JPY[/B]
• Position size: [B]3000[/B] (note: position size is always entered as UNITS, not lots; and no comma)
• Ask price: [B]99.907[/B]
• Value in: [B]USD[/B] (that’s your account currency)
• Price for USD/JPY: [B]79.035[/B]
Then, hit [B]Calculate,[/B] and you get the answer: [B]0.3796[/B] (which means $0.3796, or 37.96¢, per pip for the entire 3-micro-lot position).
Try the Calculator with different inputs, until you get comfortable with it. It’s easier than calculating these things by hand (but not as easy as letting your broker simply hand you the information).
@Clint,
You finally makes things easier for me. Babypips.com rules. I will continue to learn in this forum till when I think am ok to start trading. Thank you
