Table 6.3 allows you to see your profit or loss in dollars for various pip amounts and lot sizes. A micro-lot is 1,000 (1k) Units; a mini-lot is 10,000 (10k) Units; a standard lot is 100,000 (100k) Units; a bank lot is 250,000 (250k) Units. Some of these have been rounded off to make easier reading; they are close enough to serve the purpose for a quick in-trade status check.
Margin
Margin-per-trade is the amount of dollars you must put into play to control a larger amount of currency pair. Margin is a bit of a misnomer in FOREX. If you open a trade on a 100,000 lot of EURUSD and the broker requires $2,000 to accept the trade, your margin is $2,000. Brokers do set maximum margins. If you have multiple open positions your margin is the sum total of all of them; this is your aggregate margin. See Table 6.4.
TABLE 6.3 Profit and Loss
TABLE 6.4 Margins
TABLE 6.5 Leverage
Leverage Leverage is margin-per-trade quoted as a ratio. In the above example, leverage is 50:1 (100,000/2,000). The higher the ratio, the higher your profit (or loss) potential.
As you can see in Table 6.3, on a 100,000 lot a pip is worth $10. With leverage at 50:1 if prices go for (or against) you by 200 pips, you have made (or lost) your entire margin of $2,000, a 100 percent profit (or loss). See Table 6.5 for profit or loss in dollars of margin against different leverage ratios.
The Bid-Ask Spread
FOREX prices are always quoted in the form of Bid-Ask-Last Trade. If you are a potential buyer, the Ask is the price someone will sell to you. If you are a potential seller, the Bid is what someone is willing to buy from you. You Buy the Ask and Sell the Bid in FOREX.
Market-maker brokers add their transaction costs to this bid-ask spread. By knowing how many pips are in the spread you are able to calculate your costs for the trade, exclusive of any other factors such as slippage, commissions, or rollover costs. Typically only ECNs charge commissions and, therefore, their bid-ask spreads are tighter. Bid-ask spreads typically range from 0 pips to 10 pips in most pairs but can balloon much higher during fast markets and slow markets, as well as before, during, and after news releases. The information in Table 6.6 is given for the purpose of calculating the dollar value of the bid-ask spread and, if you trade with a market maker, the majority of your cost to trade that currency pair.
Margin
Margin-per-trade is the amount of dollars you must put into play to control a larger amount of currency pair. Margin is a bit of a misnomer in FOREX. If you open a trade on a 100,000 lot of EURUSD and the broker requires $2,000 to accept the trade, your margin is $2,000. Brokers do set maximum margins. If you have multiple open positions your margin is the sum total of all of them; this is your aggregate margin. See Table 6.4.
TABLE 6.3 Profit and Loss
TABLE 6.4 Margins
TABLE 6.5 Leverage
Leverage Leverage is margin-per-trade quoted as a ratio. In the above example, leverage is 50:1 (100,000/2,000). The higher the ratio, the higher your profit (or loss) potential.
As you can see in Table 6.3, on a 100,000 lot a pip is worth $10. With leverage at 50:1 if prices go for (or against) you by 200 pips, you have made (or lost) your entire margin of $2,000, a 100 percent profit (or loss). See Table 6.5 for profit or loss in dollars of margin against different leverage ratios.
The Bid-Ask Spread
FOREX prices are always quoted in the form of Bid-Ask-Last Trade. If you are a potential buyer, the Ask is the price someone will sell to you. If you are a potential seller, the Bid is what someone is willing to buy from you. You Buy the Ask and Sell the Bid in FOREX.
Market-maker brokers add their transaction costs to this bid-ask spread. By knowing how many pips are in the spread you are able to calculate your costs for the trade, exclusive of any other factors such as slippage, commissions, or rollover costs. Typically only ECNs charge commissions and, therefore, their bid-ask spreads are tighter. Bid-ask spreads typically range from 0 pips to 10 pips in most pairs but can balloon much higher during fast markets and slow markets, as well as before, during, and after news releases. The information in Table 6.6 is given for the purpose of calculating the dollar value of the bid-ask spread and, if you trade with a market maker, the majority of your cost to trade that currency pair.
