Important Terms , Pips, Lots And Margin Defined

Forex traders don’t trade in single unit. Forex Trading is mostly done in “lots”. Obviously trade in lots can enable you to observe any noticeable profit or loss. Lots are of many different sizes and volume ranging from nano to standard lots. For example a lot of 100000 units is called a standard lot, lot of 10000 units is called a mini lot, lot of 1000 units is called micro lot and a lot of 100 units is called a nano lot.You can select the volume of lot according to your personal preferences. Trading in lots proves cost effective as well. Forex trading strategies support trade in Lots.

Lots are pretty much linked with the pips and leverage. Let’s have a look at what is pip? And what is Leverage?

Pips:

Pip is the term used to measure any slight change in the rate of a currency as compared to the other currency. Obviously, in order to avail this change positively, you have to trade in Lots to get maximum benefit. Forex trading strategies help the traders to analyze pips properly.

For Example:

If you are trading in a standard lot of 100000 units in USD/CHF with exchange rate of 1.3544, then you can calculate it by:

(0.0001/1.3544)*100000=$ 7.38 per pip.

Leverage:

Leverage helps the traders with small investments to do wonders in forex. Bank just holds a deposit of $1000 and provides $100000 for trade. Well this is called Leverage. Leverage depends on the broker and the amount of your comfort zone.

Margin:

However you have to pay a deposit to broker as well. Such a deposit is called ‘margin’. It is specified by the broker that the certain margin will be needed for a lot. This margin varies from broker to broker. It is not a fee but minimum security and you can get it back after closing the trade. It is a risk management technique and a safety measure against loss. All the forex trading strategies keep in view the leverage and margin.

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