# Trading Lots, Leverage, and Profit and Loss

Before now, spot forex was traded in specific amounts called lots. 100,000 is a standard size for a lot. In line with this, mini, micro, and nano lot sizes are considered to be 10,000, 1,000, and 100 units respectively.

Pips is a term used to measure currencies in forex trading. It is also considered to be the smallest increment of that currency in trading forex. To be successful in taking these tiny increments, you as a market player needs to trade huge amounts of a particular currency in order to see any significant profit or loss.

Let’s make this as an example. We will be using a standard lot size which is 100, 000 unit. We will now recompute some examples to see its effects on pip value when trading.

• USD/JPY at an exchange rate of 119.80 (.01 / 119.80) x 100,000 = \$8.34 per pip
• USD/CHF at an exchange rate of 1.4555 (.0001 / 1.4555) x 100,000 = \$6.87 per pip

In cases where the U.S. dollar is not quoted first, the formula is slightly different.

1. EUR/USD at an exchange rate of 1.1930 (.0001 / 1.1930) X 100,000 = 8.38 x 1.1930 = \$9.99734 rounded up will be \$10 per pip
2. GBP/USD at an exchange rate or 1.8040 (.0001 / 1.8040) x 100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be \$10 per pip.

Brokers are different so as their ways of computing and recomputing pip value in relation to the lot size in trading. However, it needs to be made clear that whichever way they do it, they’ll be able to present you what the pip value is for the currency you are trading is a that specific time. Remember that when the market moves, pip value also moves depending on the current currency you are trading.

## What is Leverage

I know you are wondering how come a small investor like yourself can trade such huge amounts of money.  Well, think of your broker who will serve as a transition and will front you \$100,000  to buy currencies. When it comes to banks, a bank will ask you to give it \$1,000 as a good faith deposit, which it will hold for you but necessarily keep. Doe it sound so good to be true? Well, that’s how trading forex using leverage works.

In line with this, the amount of leverage you will use in trading will depend on your broker and what you feel comfortable with.

Basically, a trade deposit is required by many brokers when trading. This trade deposit is known as ” account margin” or “initial margin”. You can start trading once you have deposited your money. Along with this, brokers will also specify how much position (lot) is required when trading.

Let say for example, if 100:1 (or 1% of position required) is the the allowed leverage is, and you wanted a position worth \$100,000 to trade , but you only have \$5,000 in your account. No worries! Your broker would set aside \$1,000 as down payment, or the “margin,” and let you “borrow” the rest. However, you need to remember that any losses or gains will be deducted or added to the remaining cash balance in your account.

Also, you have to bear in your mind that the minimum security (margin) for each lot differs from one broker to broker. If you’ll look at the example above, a one percent margin was required by the broker. This means that for every \$100,000 traded, the deposit on the position that the broker wants is \$1,000.

## How do I calculate profit and loss when trading forex?

After learning how to calculate leverage and pip value, it is now time to learn and understand how you compute your profit or loss.

### In this example, we are going to buy US dollars and sell Swiss Francs. Let the trading begin!

1. The rate you are quoted is 1.4525 / 1.4530. Because you are buying U.S. dollars you will be working on the “ask”or sell price of 1.4530.

2. So you buy 1 standard lot, that is 100,000 units at 1.4530.

3. After a few hours, the price moves to 1.4550 and you decide to close your trade.

4. The new quote for USD/CHF is 1.4550 / 1.4555. Since you’re closing your trade and you initially bought to enter the trade, you now sell in order to close the trade so you must take the “bid” or buy price of 1.4550. The price traders are prepared to buy at.

5. The difference between 1.4530 and 1.4550 is .0020 or 20 pips.

6. Using our formula from before, we now have (.0001/1.4550) x 100,000 = \$6.87 per pip x 20 pips = \$137.40

One thing you need to remember when entering or exiting in  trading forex, you are subject to the spread in the quote of bid or offer. Therefore, if you plan to buy a currency, you will use the offer or ask price. On the other hand, when you sell, you will use the price of the bid.

In our next lesson, you will learn some of the freshest and famous forex lingos in trading.

Proceed to the next lesson: Freshest Forex Lingo in Trading Forex

Back to the Previous lesson: Pips & Pippetes

# Forex – How You Make Money in Trading Forex?

When we talk about Forex market, it means you buy or sell currencies like Yen, Dollars, Euro and many more.

In the forex market, placing a trade is pretty simple: the mechanics is almost similar to the mechanics that you can find other markets like the one in stock market. So, having an experience in trading stocks gives you an advantage in trading forex.

The object of forex trading is to exchange one currency for another in the expectation that soon prices will change, so that the currency you bought will increase in value compared to the one you sold.

Example:

An exchange rate is simply the ratio of 1 currency valued against another currency. Let say for example, the USD/CHF exchange rate suggests how many U.S. dollars can buy one Swiss franc, or how many Swiss francs do you actually need to buy one U.S. dollar. Let’s take a look at the example below on how to read Forex quote.

## How To Read a Forex Quote

In the world of market and trading, currencies are always quotes in pairs. Most common pairs are GBP/USD or USD/JPY. NOw, what’s the reason why these currencies come in pair? They are quoted in pairs because in every forex transaction, you are simultaneously buying one currency and selling another. Below is an example of a forex rate for the British pound versus the U.S. dollar:

The GBP currency to the left of the slash (“/”) is known as the base currency, while the USD on the right is called the counter or quote currency.

When you are buying, it is the exchange rate that tells you how much you need to pay in the units of the quote currency in order to buy one unit of the base currency. Just by looking at the example above, it clearly indicates that you have to pay 1.51258 USD to be able to buy one British pound.

Always remember that the basis for the buy or the sell is the base currency. If you buy EUR/USD, that simply means that you are buying the base currency while simultaneously selling the quote currency. In simpler terms, “buy Euro, sell US Dollars.”

As a market player, you would always want to buy the pair if the base currency will gain value relative to the quote currency. On the other hand, you would want to see the pair if you think that the base currency will lose value relative to the quote currency.

## Long/Short

Before everything else, it is imperative for you to know and determine whether you want to buy or to sell.

If you want to buy the base currency and sell the quote currency, you want the base currency to rise in value  and then you would probably sell it back at a higher price. As a market player, this process is called “going long”or taking a “long position. All you have to remember is long = buy.

On the other hand, if you want to sell the base currency and buy the qote currency, you want the base currency to depreciate in value and then you would purchase it back at a lower price. In a trader’s talk, this is what we call “going short”or taking a “short position”. Always remember: short = sell

In forex market, all foreign exchange quotes are always quotes with 2 prices: the bid and ask. For the most part, the ask price is higher that the bid price.

What is a Bid in Forex Market?

The bid is the value at which your broker is inclined toward buying the base currency in exchange for the quote currency. This only means that the bid is the best available value or price at which the trader will sell to the forex market.

What is an Ask in Forex Market?

The ask is the value at which the broker will sell the base currency in exchange for the quote. This only means that the ask price is the best available value at which the trader buys from the forex market. In a much simpler term, ask price is the offer price.

Now, what’s the difference between the bid and the ask price?

The difference between the 2 is popularly known as the spread.

When we talk about the EUR/USD quote as indicated above, the bid price is 1.34568 and the ask price is 1.34588. Look at how this broker makes it so easy for you to trade away your money.

This is what will happen. If you are going to click the “Sell” button, then you are selling the Euros at 1.3456. On the other hand, if you are going to click the “Buy” button, then you are buying the Euros at 1.34588.

### In the next lesson, we will find more examples about trading forex. Are you ready to make some money?

Proceed to the Next Lesson: Time To Make Some Money or Dough

Go Back to the previous Lesson : How Do You Trade Forex?

# Forex – How Do You Trade It?

After learning the basics of Forex, it is now the right time to learn and understand the process on how to make money in Forex.

## How You Make Money Forex

The basis for the buy or the sell is the base of currency. In a much simpler term, if you are going to buy EUR/USD, it means that you “buy EUR, and sell USD.”

## Time To Make Some Money

Thanks to the margin trading. Making some serious dough or money from trading forex becomes attainable and reachable.

## Pips and Pippettes

A pip stands for “percentage in point” and is the unit of measurement that expresses the change in value between two currencies.

## Lot, Leverage, and Profit and Loss

Do you believe that you can control large amounts of money? Yes! You read it right. This is due to the leverage. Small investors can do big.

## Most Common Forex Lingo to Impress Your Date

Impressing your special someone using Forex lingo is indeed possible. Here are some of the Forex lingo to impress your crush.

## Types of Orders

For every trader, it is imperative to know the basic order types.

## Demo Your Way To Success

Demo trading is very essential, important, necessary, crucial, indispensable. Yes! You read it right one more time. It is a must for you to demo trade and develop a solid, profitable system before you even think about investing money on the line.

## Protect Yourself Before You Crash Yourself

Patience is a virtue and always a virtue. Thus, be patient when trading forex. Forex trading is not a get-rich-quick scheme. It needs skills and takes time to learn and master. Knowing the risks will surely lead you to success.

Proceed to the Next Lesson: How You Make Money in Forex

Go back to the Previous Lesson: Best Days of the Week to Trade Forex

# New York Session

Volatility tends to slow down during the middle of the London session. This is because traders go to eat  lunch while waiting for the New York session to open. Once the European market players get back from their lunch breaks, the U.S session or New York session starts at 8:00 EST as market players start rolling into the office. Just like what Asia and Europe have, U.S session has one major financial center that the market players keep their eyes on. Now, what is this famous financial center that we’re talking about? You got it! It’s the New York session. This is considered to be the concrete jungle where dreams are usually made of.

Look at the table below. It shows the New York session ranges of the major currency pairs.

The values above were calculated using averages if past data from the month of May 2012. Depending on liquidity and other market conditions, these values may vary. Thus, considered to be not absolute values. If you are going back to the table, you will notice that the New York session range for EUR/CHF has not been included since the Swiss currency Franc has been nailed to the Euro at 1.2000 during that time.

### Now what are the things that you should remember about trading during the New York Session:

1. During the morning, expect to have a high liquidity as it overlaps with the London Session.

2. Near the start of the New York Session, most economic reports are usually being released. It is clear that 85% of all trades involve the dollar. Therefore, whenever big time U.S economic data is released, markets have the highest potential to move.

3. Liquidity and volatility tends to slow down during the afternoon New York session once the European markets close the shop.

4. Expect a very little movement ever Friday afternoon. Both Asian and European traders and market players are usually out during this time.

5. Also on Fridays, there is the chance of reversals in the second half of the session, as U.S. traders close their positions ahead of the weekend, in order to limit exposure to any weekend news.

## Which Pairs Should You Trade During New York Session?

Liquidity is very high during this time because both US and European markets are open at the same time. You can expect that banks and multinational companies to exhaust the lines. During this time, you as a market player can trade any pair virtually. However, it is imperative for you to stick to the major and minor currency pairs and avoid those weird ones.

Remember that U.S dollar id on the other side of the majority of the transactions, expect that almost all of the traders will pay attention to U.S data that will be released. If these reports come in worse or better than what anyone else expected, markets could be dramatically shake up as the dollars will be jumping up and down.

That’s all about New York Session!

Are you still confused on which sessions start when? Then it is just the right time to give you a clear understanding on session overlaps.

Proceed to the next lesson: Session Overlaps

Go back to the previous lesson: London Session

# London Session

From the time the Asian market or Tokyo market starts to close the shop, the European market known as the London session is just starting their day.

Market participants keep their eyes on London session in spite of the other financial centers all around the Europe.

Even before, London has always been at the center of every trade, this is because of their strategical location. Due to its strategic location, London has been considered to be the forex capital of the world with thousands of businessmen trade every single minute. During the London session, about 30% of all the foreign exchange transactions happen.

Look at the table below. It shows the London session ranges of the major currency pairs.

The values above were calculated using averages if past data from the month of May 2012. Depending on liquidity and other market conditions, these values may vary. Thus, considered to be not absolute values. If you are going back to the table, you will notice that the session range for EUR/CHF has not been included since the Swiss currency Franc has been nailed to the Euro at 1.2000 during that time.

Hear are some of the conceptions about the European session or London session:

1. London session crosses with the two other major trading session. London session is also the key financial center in Europe. A lot of forex transactions take place during this period. With this kind of situation, high liquidity and potential lower transaction costs are expected.

2. London trading session is considered to be the most volatile session due to the large amount of transactions that take place.

3. During the London session, most of the trends begin and continue until the New York session starts.

4. At lunch time, volatility tends to slow down during the middle of the London session because traders go on break while waiting for the New York session to start.

5. Trends can sometimes reverse at the end of the London session, as European traders may decide to lock in profits.

## Which Pair Should You Trade during London Session?

During the London session, there is so much liquidity that any pair can be traded. This is due to the volume of transactions that take place.

It is best to stick with the major currency pairs such as EUR/USD, GBP/USD, USD/JPY, and USD/CHF. These currency pairs normally have the tightest spreads.

Also, it is these pairs that are normally directly influenced by any news reports that come out during the European session.

Yen crosses are also a good choice. These currency pairs EUR/JPY and GBP/JPY are pretty volatile during this time. However, you have to bear in mind that cross pairs may cause spreads to be a little wider.

### That’s all about the London Session. It’s now time to learn the New York session.

Proceed to the next lesson: New York Session

Go back to the previous lesson: Tokyo Sesssion

# Tokyo Session

### When does the Tokyo session start?

Asian session starts when the Tokyo session opens at 12:00 AM GMT. Considered to be the financial capital of Asia, Tokyo session is sometimes interchangeable to Asian session. Don’t get confused once you stumble upon these terms.

London and New York are among the largest forex trading centers in the world, but you need to take note that there’s Japan as well. It is considered to be the third largest forex trading center in the world.

It’s actually not surprising at all since Japan’s Yen is the third most traded currency, sharing 16.50% of all forex transactions. Overall, about 21% of all foreign exchange transactions take place during this trading session.

The table below represents the Tokyo session ranges of the major currency pairs.

Using averages of past data from the month of May 2012., those data were calculated. Again, the values stated above are not absolute values. They can vary depending on liquidity and other factors like market conditions. If you are going back to the table, you will notice that the session range for EUR/CHF has not been included since the Swiss currency Franc has been nailed to the Euro at 1.2000 during that time.

So what are the characteristics that you need to know about Tokyo session?

1. It’s not all about Japanese territories and shores. Lots of foreign exchange transactions are created in other financial hotspots like Singapore, Sydney, and Hong Kong.

2. Commercial companies and central banks are the main market players during the Tokyo session. Always remember that Japan’s economy depends on export heavily. This makes a lot of daily transactions taking place along with China, which is also considered to be as one of the major trade players in Tokyo session.

3. Liquidity can sometimes be very thin or diluted. Another thing, patience is a virtue. There are times when trading during this period will be like watching a blockbuster movie – you need to fall in line and wait for your turn before you can buy and get a ticket.

4. Asian Pacific currency like AUD/USD and NZD/USD are more likely to be stronger compared to non-Asia Pacific pairs like GBP/USD.

5. During those times of thin liquidity,pairs stated above may stick within a range. This gives chances for short day trades or potential breakout trades later in the day.

6. When more economic data is released, expect more actions to take place early in the Tokyo session.

7. For the rest of the day, moves in the Tokyo sessions could set the tone. To help organize and evaluate what strategies to take in other session, traders in latter sessions will look at what happened during the Tokyo session.

8. It is not uncommon to see consolidation during the Tokyo session most especially after big actions in the preceding New York Session.

## Which Pair Should You Trade during a Tokyo Session?

When news from Australia, New Zealand, and Japan comes out, then it is a good idea to participate in the Tokyo session and a good chance to trade news events. There could be more movement in yen pairs as well. This is because a lot of yen is varying hands as Japanese companies are conducting businesses.

It is also important to take into consideration that China has a powerful economy. Therefore, whenever news comes out from China, expect a stronger and volatile moves.

Japan and Australia rely much on Chinese demand, thus we could see greater actions and movements in JPY and AUD pairs when data from the China comes in.