The content of the article
Notion:
- Lot:
+ In daily life, people often have units to convert goods to make calculation easier. For example, buying meat by kilogram, buying water by liter … in Forex trading will be converted into lots.
- Price (pips):
+ In a measurement that measures the distance is meters, centimeters …, in Forex trading, when compared at different prices at different times, it will be called PRICE (PIPS).
Example:
About LOT:
- Forex pairs: 1 lot = 100,000 units of the base currency, which is the preceding currency in the pair. For example, 1 lot EUR/USD = 100,000 EUR, 1 lot USD/JPY = 100,000 USD.
- Gold (XAUUSD): 1 lot = 100 ounces ( 1 ounce: approx. 0.8 taels of Gold)
- Crude oil: 1 lot = 1,000 barrels
- Indices: 1 lot = 1 CFDs
- Stock: 1 lot = 1 share
However, regulations on contract size for asset classes such as crude oil and stocks will often be different for each broker. There will be a floor of 1 lot of crude oil = 100 barrels, 1 lot of shares = 10 shares…
>= So when you open a trade to BUY 1 Lot of Gold is equivalent to BUYING 100 ounces of Gold.
About PRICE ( Pips):
. 1 PRICE = 10 Pips
- Gold moves from a 1900 rise to 1901, known as a 1 PRICE gain (10 pips).
- Gold moves from a 1900 price drop to 1899, known as a 1 PRICE drop (10 pips).
- Gold moves from 1900 bullish to 1910, known as a 10 PRICE increase (100 pips), similarly the opposite from 1900 to 1890 is called a 10 price drop (100 pips).
For most Forex currency pair prices, 1 pip is in the 4th decimal place.
For example, the EURUSD is at a price of 1.14988 rising to 1.14998, which is known as a 1 pips increase.
So usually, to make it easier to observe the market better, we should take the beginning at the 3rd decimal
For example, Eurusd at 1.14988, we will only look at 1.149 (not the last 2 digits) when rising to 1.150 is called an increase of 1 PRICE (10 PIPS).
EURUSD moves from a price of 1.15000 (we only look at 1.150) when rising to 1.155 which is called a 5 PRICE increase (50 PIPS).
How to calculate Forex profit when trading:
- When opening an order with a trade volume of 1 LOT (Buy / Sell 1 Lot) when the market moves 1 Price (10 pips) we will have a Profit/Loss of $100.
- When opening an order with a trade volume of 0.1 LOT (Buy / Sell 0.1 Lot) when the market moves 1 Price (10 pips) we will have a P/Loss of $10.
- When opening an order with a trade volume of 0.01 LOT (Buy / Sell 0.01 lot) when the market moves 1 Price (10 pips) we will Profit / Loss 1$.
Example:
- Gold is at the price of 1900, we predict the market will increase => Buy Gold 1 Lot/0.1Lot/0.01Lot (we can choose the number of Lots in the trading section) at the price of 1900, gold rises to 1901 we have a profit of 100$. Conversely, if we predict a bullish market, but the market has fallen from 1900 to 1899, then we will lose $100/$10/$1 (Depending on the number of lots)
- EURUSD is at 1,150, we predict the market will rise => Buy eurusd 1 lot/0.1 lot/ 0.01 lot at 1,150, eurusd rises to 1,151 we make a profit of $100. Conversely, if we predict a bullish market, but the market has fallen from 1,150 to 1,149, then we will lose $100/$10/$1
Above is the basic theoretical lesson that Blackmantrader has summarized a lot of ideas for you to easily understand to be able to trade Forex realistically. Hope to help you more in the way of Trading
