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To go long on a currency means that you buy it, hoping that the price will rise. A long position is expressed in terms of the base currency.
To go short on a currency means that you sell it, hoping for a decline in the market price. A short position is usually expressed in terms of the base currency.
A lot is the minimum quantity of a security that may be traded. 1 lot is usually equal to 100,000 units of the base currency you are trading. EURUSD 0.01 standard lots is 1% of 100,000 or 1000 EUR
TradingLotPercentage = 0.01 AccountBaseCurrency = EUR LotValue = 100,000 EUR CurrencyPair = [EUR]/USD InvestmentperTrade in CurrencyPair = TradingLotPercentage * 100,000 EUR = 1000 EUR InvestmentperTrade = (0.01*100)/100 * 100,000 EUR
A pip is the smallest amount by which a currency quote can change. PipValue = 0.0001 AccountBaseCurrency = EUR CurrencyPair = EUR/USD ExchangeRate = 1.08962 (EUR/USD) LotSize = 1 Lot (100'000 EUR(AccountBaseCurrency))
PipValue = PipValue / ExchangeRate * LotSize PipValue = (0.0001 / 1.08962) * 100000 = €9.18
A margin account, involves borrowing money to increase the possible return on investment. Investors often use margin accounts when they want to invest in equities by using the leverage of borrowed money to control a larger position than they'd otherwise by able to control with their own invested capital.
As a trader, it is crucial that you understand both the benefits AND the pitfalls of trading with leverage. Using a ratio of 100:1 as an example, means that it is possible to enter into a trade for up to $100 for every $1 in your account. If your trade moves in the opposite direction, leverage will AMPLIFY your potential losses.
You’ll be broke faster than Mike Tyson can chew your ear off.
| LEVERAGE | % CHANGE IN CURRENCY PAIR | % CHANGE IN ACCOUNT |
|---|---|---|
| 500:1 | 1% | 500% |
| 100:1 | 1% | 100% |
| 50:1 | 1% | 50% |
| 33:1 | 1% | 33% |
| 20:1 | 1% | 20% |
| 10:1 | 1% | 10% |
| 5:1 | 1% | 5% |
| 3:1 | 1% | 3% |
| 1:1 | 1% | 1% |
Let’s say you bought(long) EURUSD and it goes up by 1% from 120.00 to 121.20. If you trade one standard $100K lot, here is how leverage would affect your return:
| LEVERAGE | MARGIN REQUIRED | % CHANGE IN ACCOUNT |
|---|---|---|
| 500:1 | $5,000 | +500% |
| 100:1 | $1,000 | +100% |
| 50:1 | $2,000 | +50% |
| 33:1 | $3,000 | +33% |
| 20:1 | $5,000 | +20% |
| 10:1 | $10,000 | +10% |
| 5:1 | $20,000 | +5% |
| 3:1 | $33,000 | +3% |
| 1:1 | $100,000 | +1% |