[EDU-Bite Sized Mini Series]Margin? Lots? Spread? What are they?Hello fellow traders , my regular and new friends!
Welcome and thanks for dropping by my post.
Today we are going to cover terms such as Margin, Lot size, Spread and What are they.
Forex trading is a dynamic and potentially lucrative endeavor, but it comes with its own set of terminology and jargon that can be intimidating for beginners. Understanding these terms is crucial for aspiring traders to navigate the forex market effectively and make informed decisions.
Margin
One of the fundamental concepts in forex trading is margin, which refers to the amount of money required to open and maintain a trading position. Margin allows traders to control larger positions with a relatively small amount of capital, amplifying both potential profits and losses. It's important for traders to understand margin requirements and manage their leverage carefully to avoid excessive risk.
Lot Size
Another key concept is lots, which represent the size of a trading position in forex. Standard lots typically consist of 100,000 units of the base currency, while mini lots and micro lots represent 10,000 and 1,000 units, respectively. Lot size determines the potential profit or loss of a trade, with larger lots leading to greater fluctuations in account equity. If you are more comfortable with smaller lot size, you can even go on to nano lots in 100 unit of currency.
Spread
Spread is another term commonly used in forex trading, referring to the difference between the bid and ask prices of a currency pair. The bid price is the price at which traders can sell a currency pair, while the ask price is the price at which they can buy it. The spread represents the cost of executing a trade and can vary depending on market conditions and liquidity.
There are different types of spreads encountered in forex trading, including fixed spreads and variable spreads. Fixed spreads remain constant regardless of market conditions, providing traders with certainty about trading costs. On the other hand, variable spreads fluctuate in response to market volatility, widening during times of high activity and narrowing during periods of low activity.
Understanding these trading terms and jargon is essential for beginners to develop a solid foundation in forex trading. By mastering concepts such as margin, lots, spread, and different types of spreads, aspiring traders can make more informed decisions and effectively manage their risk in the dynamic and fast-paced world of forex.
Do check out my recorded video (in trading ideas) for the week to have more explanation in place.
Do Like and Boost if you have learnt something and enjoyed the content, thank you!
-- Get the right tools and an experienced Guide, you WILL navigate your way out of this "Dangerous Jungle"! --
*********************************************************************
Disclaimers:
The analysis shared through this channel are purely for educational and entertainment purposes only. They are by no means professional advice for individual/s to enter trades for investment or trading purposes.
*********************************************************************
LOTS
NZD/USD - Bullish Push via Break of Structure What Is The Market Telling Us?
Sell side liquidty taken from stop hunt, giving off a false bias of downward movement
There is a continuous break of market structure (BMS) in current trend
Previous daily high has been violated with
What Are Market Participants Doing?
Within the last 24hrs of this post, there has been a +23% jump in NZD long positions from banks
The retail traders are losing as 68% of retail traders are shorting this pair, looking for a top within the uptrend
COT Data reports a +2000 lots added into NZD currency from 38,435 to 40,632
WHY PIPS DON`T MATTER#ExplanationHey tradomaniacs,
ever since I`m in this business I see posts about "Profit in pips" and how important allegedly pips are.
I can tell you... this is non-sense unless you trade the same PAIR with exact the SAME Risk-Reward over and over again!
In this post, I want to clarify and show you that it is absolutley senseless to count the profit in pips as it says nothing about your actual profit!
NOTICE: THERE IS A BUG IN THIS POST SO OPEN THE SNAPSHOTS AND CLICK ON IT AGAIN!
So let`s have a look at the first chart and see what we got here...
In this scenario you see two trades with exact the same risk-reward-ratio of 5:25. This means you risk 1$ for 5,25$ or can win 5, 25x more than you can lose.
We assume here that we risk 1% per trade.
Scenario 1️⃣: 👉You win EUR/USD and lose USD/JPY
EUR/USD:
Risk: 1%
Profit in pips: 68 pips
Profit in %: 5,25
USD/JPY:
Risk: 1%
Loss in pips: -5 pips
Loss in %: -1%
Result in pips: 68 pips - 5 pips = 63 pips profit
Result in %: 5,25% - 1% = 4,25%
Scenario 2️⃣: 👉You lose EUR/USD and win USD/JPY
Risk: 1%
Loss in pips: 13 pips
Loss in %: -1%
USD/JPY:
Risk: 1%
Win in pips: +25 pips
Profit in %: +5,25%
Result in pips: 25 pips - 13 pips = 12 pips profit
Result in %: 5,25% - 1% = 4,25%
The real profit on your account is 4,25%, no matter which trade you`ve won and how many pips you`ve made! The pip-difference is 51 pips, but you still have these 4,25%, no matter which trade you win!
Why is that? Now look at USD and at JPY-Pairs.
A pip in USD, or MAJOR-PAIRS is always the fourth figure behind the komma. 👉 1,248(0)0
A pip in JPY, or JPY-PAIRS is always the second figure behind the komma. 👉 107,6(8)5
Let`s calculate the pip-difference from Entry to target for both pairs:
1️⃣ EUR/USD:
Take-Profit - Entry
1,2547 - 1,2479 = 0,0068 = 68 pips
2️⃣USD/JPY:
Take-Profit - Entry
107,935 -107,685 = 0,25 = 25 pips
Also notice that if you lose both trades that a -5 PIP loss and a -13 PIP loss are both the same LOSS of 1 % if you stick to a consistent risk! IT DOESN`T MATTER!
Okay, let`s say you trade the same pair with the fourth figure behind the comma as a pip, but you trade with different risk-rewards but a huge move you catch!
In this case you trade with a different risk-reward as you need a wider stop-loss due to volatility and you want to advoid to get stopped out!
You use the same strategy to follow the trend, but now we had news that pumped EUR/USD like hell!
Scenario 1️⃣: 👉You lose the first EUR/USD trade and win the second EUR/USD trade
EUR/USD #1:
Risk: 1%
Loss in pips: -13 pips
Loss in %: -1%
EUR/USD #2:
Risk: 1%
Win in pips: +140 pips
Win in %: 4%
Result in pips: 140 pips -13 pips = 127 pips profit
Result in %: 4% - 1% = 3% profit on your account
Scenario 2️⃣: 👉You win the first EUR/USD trade and lose the second EUR/USD trade
EUR/USD #1:
Risk: 1%
Win in pips: +68 pips
Win in %: 5,25
EUR/USD #2:
Risk: 1%
Loss in pips: -37 pips
Loss in %: -1%
Result in pips: 68 pips - 37 pips = 31 pips profit
Result in %: 5,25% - 1% = 4,25% profit on your account
Even though you`d make 127 pips in scenario 1, the real profit would be 1,25% less on your account!
ERGO: More pips = Less profit
So let`s head into a very extreme example of HOW pips don`t tell you a s**t about your profits! ;-D
In this example we compare a GOLD-TRADE with our recent EUR/USD-TRADE.
I don`t want to spamm this post with too many calculations so I try to keep it simple here.
Important to notice is that the PIPS for GOLD are represented by the second figure behind the comma.
In this scenario we buy Gold at 1.800$, or 1800,0(0) <- Cents
A dollar change in Gold , for example 1800 to 1801, is called a POINT.
A dollar change in Gold would be 100 Cents, or 100 pips!
So let`s say you buy gold with a risk-reward of 2:1, means you risk 1$ for 2$ or can win 2x more than you can lose.
In this case you would make 20 POINTS as the price moves from 1.800$ to 1.820$. In pips you would make 2.000 friggin pips but only 2% profit compared to your 68 pips in EURO /USD with 5,25% profit.
One last example:
In this scenario you win the EUR/USD trade and LOSE the GOLD-TRADE:
EUR/USD #1:
Risk: 1%
Win in pips: +68 pips
Win in %: 5,25
XAU /USD:
Risk: 1%
Loss in pips: -700 pips
Loss in %: -1%
Result in pips: +68 pips - 700 pips = -632 pips profit
Result in %: 5,25% - 1% = 4,25% profit on your account
You would lose -632 pips but make a real profit of 4,25% on your account!
So when do PIPS really matter? If you would trade the same PAIR with the same RISK-REWARD over and over again as you would always win and lose the same amount in %.
If you`d trade the same EUR/USD trade, PIPS would actually make sense to be counted. But who trades that way? Almost noone!
What does that mean for your positionsize in LOT?
They always VARY! Use a position-size-calculator to get your right position-size.
But thats a topic for another post... :-)
IF YOU WANT TO SEE MORE EDUCATIONAL CONTENT PLEASE LEAVE A LIKE AND A COMMENT.. especially when this helps you! :-)
Peace and good trades
Irasor
Wanna see more? Don`t forget to follow me
Longer term swingI bought in at about $35 and of course the market became manic depressive lol. But, IMO this stock has strong upward potential and is getting some eyes on it.
Currently riding the lower resistance, if it breaks down then you can forget about what i said above ;)
Stochastic is about right for an upward reversal, rsi looks good however its trending down currently.
wish me luck.
AUDUSD MILK LONG Quick analysis of FOREXCOM:AUDUSD 1HR chart. Here we see the pink line representing R1 (Resistance) and the Blue link representing S1 (Support). AUDUSD's structure was respecting S1 numerous times and will most likely continue to uptrend. Wait to enter when price retests S1 then reap the rewards!
USDJPYHello all - DuncanForex.com here with another trade idea
As per my Gold short trade - I think USDJPY is ready to head a lot higher. (see related trade below)
On the monthly chart it printed an amazing pin bar (back in Jan)
It is now at the 61.8% retrace level (just under it by about -60 pips (on a weekly chart)
I think this could head up to 115 level easily on a Fibonacci extension.
I have entered 3 trades at 106.91 area
DuncanForex.com coming soon (about 1 week)
Thanks for looking
Duncan