subject: 5 Essential Lessons in Currency Trading Basics [print this page] The Concept of Lots The Concept of Lots
In forex trading, you trade in "lots". Usually, the standard size for a lot is 100,000 for any base currency. In other words, if you deposit USD 500 at a forex broker that offer 1:400 leverage, then you can trade 500 x 400 = 200,000 worth of currencies or 2 lots. Depend on your broker, they can also give you 10,000 lot size.
The Concept of Profit and Loss
It's just like any other trades in the world, you'll want to buy at low price and sell at high price. The only real difference here is you can sell first when the price is high, then buy later once the price has fell. As I have described above, it is possible since you always buy and sell at the same time.
The profit/loss formula for any currency pair with 4 decimal (such as EURUSD) is:
(pip difference x 0.0001) x lot size x lot volume
Note:
- Pip difference is sell price - buy price
- The result is in the right side of currency pair. Illustration: in GBPUSD, the result is in USD.
Illustration:
Buy 1 lot of EURUSD at 1.4500, then sell it at 1.4550
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