Lots, Leverage, Profits cashback forex LossesIn the past, spot forex trading in a specific amount was called a lotThe standard size of a lot forextradingmarket $ forextradingtime00, forex trading session timesThere is also a small, micro and milli lot size of 10,000, 1,000 and 100 respectively As you already know, currencies are measured in pips, which is the smallest of that currency VolatilityIn order to take good advantage of these tiny volatility sizes, you need to make a lot of trades in a certain currency to see significant profits or losses Suppose we will use a lot size of $100,000 (standard) Now, we will recalculate some examples to see how it affects the point value of 1. The USD/JPY rate is 119.80 (0.01/119.80) x 100 USD/CHF exchange rate is 1.4555 (0.0001/1.4555) x 100,000 = $6.87 in pips in which the dollar is not in first position, the formula is slightly different 1. EUR/USD exchange rate is 1.1930 (0.0001/1.1930) x 100,000 = 8.38x1.1930 = $9.99734 moved up to 10 pips per 2. GBP/USD exchange rate or 1.8040 (0.0001/1.8040) x 100,000 = 5.54x1.8040 = moved up to 109.99416 pips per Your broker may have a different one pip value for many different sized formulas Calculations, but either way, they do so they can tell you the value of the currency pips you are trading at a particular time As the market fluctuates, the value of the pips will determine which currency you take for trading What exactly is leverage? You may be wondering how a small investor like you can trade such a large amount of money Think about the bank that acts as your broker, it lends you $100,000 to buy a currency brokerage firm What the bank wants you to give it is a $1,000 credit margin that will belong to you, but not necessarily always remain yours Sounds too good to be true? Thats what happens with leveraged forex trading The amount of financial leverage you use will depend on your broker and your personal habits Typically, the broker will require a certain amount of trading margin, also known as a "margin account" or "initial margin "Once you deposit your money you can trade the broker may also specify how much money they need per unit (lot size) to trade For example, if the allowed financial leverage is 100:1 (or 1% lot size requirement) and the value you want to trade is $100,000 in lots, but you only have $5,000 in your account your The broker will have no qualms about setting aside $1,000 as a down payment or "margin" and then letting you "borrow" the rest. In the example above, the broker requires a one percent margin which means that for every $100,000 in trades, the broker requires a deposit of $1,000 in that trade How exactly do I calculate profit and loss? So now that you know how to calculate point values and financial leverage, lets look at how to calculate your profit or loss Lets take the example of buying US dollars and selling Swiss francs (for illustration) 1. Your quote is 1.4525/1.4530 because you are buying US dollars, so you have to do the calculation at 1.4530 or at the traders predetermined sold rate 2. So you buy 1 lot (100,000 units) at 1.4530 3. A few hours later, the price rises to 1.4550 and you decide to close the trade 4. "The difference between 1.4530 and 1.4550 is .0020 or 20 pips.6 In the formula we used, we now have (.0001/1.4550) x 100,000 = $6.87 per pips x 20 pips = $137.40 7. Remember that when you open or close a trade, you must abide by the quotes that float when buying/selling You buy a currency with a bid or ask price and when you want to sell it, you will use the bid price