The second part of your question contains some issues which we need to address.
You asked, “… how much money would it cost me to place a trade on a micro lot?”
Your “cost” in this scenario is the margin you are required to commit to your trade. That margin is determined by the pair you are trading, and by the size of your trade. But, you are specifying a trade size of 1 micro-lot – which doesn’t make sense in the context of your question.
After we deal with the first part of your question, we will come back to this issue of position size.
In the first part of your question, you specify that 10 pips should be worth £5, and 5 pips should be worth £2.50. The easiest example to illustrate these metrics would be a EUR/GBP trade. Why? Because in the EUR/GBP pair, GBP is the quote currency – and it’s the only GBP-pair in which the GBP is the quote currency (not the base currency). So, let’s work with this pair first.
If you trade 5 micro-lots of EUR/GBP (either long or short), each pip will be worth £0.50, your 10-pip TP will be worth £5, and your 5-pip SL will be worth £2.50 – which is what you asked for.
How do we know this? Because in any XXX/GBP pair (and there is only one such pair, the EUR/GBP pair), one micro-lot has a pip-value of £0.10 per pip – which, clearly, is £1 per 10 pips. So, 5 micro-lots would have a pip-value of £5 per 10 pips (your TP), and £2.50 per 5 pips (your SL), which is what you asked for.
Returning to the second part of your question – the part regarding “cost to place a trade on a micro-lot” – it should be clear to you now that the trade is not “a micro-lot”. It’s 5 micro-lots.
And the “cost” for entering that trade is the margin required by your broker. If the margin required is 2% of the notional value of your trade, then your initial “cost” will be 2% of 5,000 EUR – because 5,000 EUR is the notional value of 5 micro-lots of EUR/GBP.
You can convert this to GBP (your account currency) using the current price of EUR/GBP.
If the margin required is some percentage other than 2%, then you can do the math.
So, what if you want to trade some other pair (that is, a pair not having the GBP as its quote currency)?
In this case, the pip-value will not be £0.10 per pip per micro-lot. Instead, it will depend on the value of the quote currency relative to the GBP. Let’s use an example.
Suppose you want to trade EUR/USD (or any other pair having the USD as its quote currency). We know that, in a one micro-lot EUR/USD trade, one pip has a value of $0.10. We need to use the current price of GBP/USD, in order to determine this pip-value in GBP.
Let’s say the current price is GBP/USD = 1.2670.
From this we calculate that $0.10 per pip per micro-lot (the pip-value in USD) = $0.10 / $1.2670/£
= £0.0789265 per pip per micro-lot (the pip-value in GBP).
For a 10-pip TP, $1 (the pip-value in USD) would equal £0.789265 (the pip-value in GBP).
If you want your trade to be worth £5 per 10 pips (which is what you specified for your TP), then you will need a position size larger than the 5-micro-lot position calculated for the the EUR/GBP trade above, because the value of pips in GBP is smaller in this EUR/USD trade, than in the EUR/GBP trade. We calculate – Position size in micro-lots = £5 / £0.789265 = 6.335 micro-lots of EUR/USD.
If your trading platform allows you to trade in micro-lot increments (but not in smaller increments), then you will have to round down to 6 micro-lots.
If your platform allows you to trade in individual units of currency, then you can set your position size at 6,335 units of EUR/USD.
As for the “cost” of this trade – meaning the initial margin required by your broker – as in the EUR/GBP trade, required margin will depend on the exact notional value of the trade (that is, whether it’s 6 micro-lots or 6,335 units), and on the margin percentage specified by your broker.
I’ve tried to give you a complete answer to your question. The answer is complicated by the fact that your question reverses the direction in which these things are normally calculated.
Normally, we specify our account currency, the amount of money to be risked, the pair to be traded, and the size of our stop-loss – and then calculate a position size. This can be done by hand, but there’s no need to do that, when Position Size Calculators are readily available.
You can check the results of the calculations above by using the Position Size Calculator, provided you make the following adjustment – When entering your metrics into the calculator, use a combination of Account Balance and Risk Percentage (such as £100 and 2.5%) that will coincide with Amount at Risk of £2.5. Then, enter 5 pips for your stop-loss, and complete the calculation.
In the case of the EUR/GBP trade discussed above, the Calculator will look like this –
And in the case of the EUR/USD trade, the Calculator will look like this –
