1. This site uses cookies. By continuing to use this site, you are agreeing to our use of cookies. Learn More.

Part 2

Discussion in 'Beginners Bootcamp' started by SwingTrader1, Jun 21, 2010.

  1. SwingTrader1

    SwingTrader1 Recruit

    Joined:
    Jun 18, 2010
    Messages:
    16
    Likes Received:
    0
    I goofed I forgot a couple of topics that need to covered before I continue.
    They are pips, lots, and margin. What I'll do is cover these items in todays article and then tomorrow pick up where I left off.

    Pip, a pip is a term given to the value of a portion of the quote price, in 1/100ths

    Example, EUR/USD is trading at 1.2380 (quote) if the price changes from 1.2380 to 1.2381 it has moved 1 pip 1/100th of a point.

    The value of the pip is determined by the lot size that a trader uses.

    Lots, come in basically 3 sizes. micro, mini, and standard.

    1) Micro lot size is 1000, pip value .10

    2) Mini lot size is 10,000, pip value is 1.00

    3) Standard lot size 100,000, pip value is 10.00

    Last but not least margin.

    Margin is the amount of money that you as a trader have to put on deposit to place a trade. Most brokers offer different leverage sizes. Leverage determines the amount of margin required. We'll use the EUR/USD as an example.

    Im placing a trade my lot size is micro my leverage is 50:1 therefore the margin required is 24.76 Lets change the leverage and see what happens. Again Im placing a trade using micro lot this time my leverage is 200:1 My margin required is 6.19 Look what happened, it went down. So what we can deduce from this is the higher the leverage the lower the margin required.

    Trading at higher leverage has its advantages and disadvantages. The biggest disadvantage is rollover which I will cover in a later article. The advantage is less margin is required.

    Trading at lower leverages also has advantages and disadvantages. The dis advantage is larger margin is required to place a trade. The advantage is rollover which I will cover in a later article.
     

Share This Page