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Forex Hedging Simplified

November 26, 2009 By Raj Leave a Comment

Some FOREX traders use hedging to protect themselves from unexpected negative price movements. When used wisely, hedging can protect traders trading on a currency pair for a long time from price falls. Sounds like insurance? Hedging is similar to insurance, but a lot more complicated.

If a spot FOREX transaction is a trader’s first position, he can choose to hedge with another spot order or another trade. The most common form of trade hedged is the FOREX option. Hedging with FOREX options allow you to purchase or sell the currency pair at a certain price in the future. This helps overcome the problem of short delivery date. You could also choose to hedge with currency futures.

FOREX hedging should be done carefully in a step-by-step manner. If hedging isn’t done carefully you will end up receiving very little protection. The process of hedging could be divided into the four steps described below.

i. Risk Analysis

First, deduce the risk the current or planned position is in. Find out if this risk is too high as per the present market conditions.

ii. Finding Your Risk Tolerance

Hedging is not meant to completely eliminate risk, but to reduce the risk to what you consider as normal. So, find out your risk tolerance level. Your risk tolerance should not be based on your present apprehensions and must be one that would be applicable to any situation of the same nature.

iii. Hedging Strategy Formulation

Decide which hedging strategy you would employ with spot or currency options. Choose the strategy which you believe would work well.

iv. Implementation

This is the vital step of implementing the FOREX hedging strategy you chose. Keep an eye on the market for any changes that might affect the implementation.

Two aspects of FOREX trading any trader should master are risk management and money management. Hedging is a good way to bring down the risk arising out of certain circumstances.

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Finding Your Ideal FOREX Trading System

November 26, 2009 By Raj Leave a Comment

A lot of FOREX traders believe that their success rate would increase if they had the perfect trading system. Sadly, there is not one trading system that can be labeled ‘perfect’. There are so many trading systems available today and traders buy one and modify it to suit their needs.

System vs. Strategy and Schedule:

A good FX trading system has a set of strategies from which it employs the most suitable strategy on a given market condition. The strategy employed for an abruptly changing market would be much different from the one employed for a stable market. Likewise, there should be different strategies for long-term and short-term goals. The trading system’s strategies should complement yours and are oriented towards your goals.

Your trading system must also go well with your schedule. Certain trading systems such as a day trading system will require you to be online during certain hours of the day. If that is not possible for you, it is wise to develop a long-term trading strategy.

Go for Systems with High Success Rates:

The success rate of your system must be above a certain average. This requirement is only for psychological reasons. There are several traders with low success rates and yet managing to trade profitably. This is because they lose very little even if they are losing often and win big even if they gain seldom. Frequent losses, therefore, are not always bad, but can be devastating for the trader. A trader in a depressed state of mind is prone to making more mistakes and would less likely stick to the plan.

Get Enough Training:

Before you start using a trading system, make sure that you are adequately trained. Make sure you get detailed instructions on how to use the system. A video tutorial would be ideal. Make sure you also get clearly-formatted instructions in text. This will be very useful for quick references when you do not have the time to let the video load
and search for the information you need.

If you do not take enough care in choosing your FOREX trading system, you might regret later. The trading system that suits you best would ensure that you gain well apart from keeping your confidence levels high.

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Trading Strategies: Dealing With and Recovering From a Loss

November 20, 2009 By Raj Leave a Comment

Most of us like to hear people talk about winners and about how we could win. We are innately reluctant to talk about losing or think about what needs to be done when we lose. The interesting thing is that the best way to win is by
learning how to deal with a loss.

You have decided to find out how to deal with a loss and hence, you are reading this article. That is a step in the right direction. Congratulations! You are not one among the many people who never realize the importance of learning how to deal with losses.

There is no perfect strategy that wins 100% always:

Everybody goes into every trade believing that he or she is going to make a huge profit. However, that never happens because you never have a 100% success rate in this business. There is no perfect strategy or a technique which works always. Every technique or strategy fails in some cases. There is always a possibility that you’d lose and all successful
traders agree. Your aim should be to earn more than you lose while taking loss sportingly. If there is a technique or strategy you want to follow, practice it first on a demo account. There are many brokers who offer demo accounts and you can open one and practice it. Try to estimate the number of winning trades and losing trades in a particular time like a month or a year etc. If the number of winning trades are more than the number of losing trades and if the number
winning pips are more than the number of losing pips you can follow that technique or strategy.

Stop trading for that day or two, if you are losing trades consecutively:

When you encounter a loss, accept that it is part of this business and move on. Practice and avoid feeling shattered. It is sometimes wise to end the day’s trading if you are totally very disappointed and trying too hard to make a comeback. In such a state of mind, it is better not to trade. Come back tomorrow.

Remember one thing. Trading is not gambling. In gambling, when people lose money they think that they can win again in the next one and gamble again and again and lose everything. So you should not go into that situation with trading. You better stop it for some time if you are losing trades consecutively and come back after some time or after some
practice trading in a demo account.

Maintain a trading plan:

A trading plan is a plan you follow for trading like the techniques you follow, the trading hours you go in etc. Anyone who has stuck to the trading plan will not have many reasons to worry about. Lets say you have a trading plan with a technique and if the technique allows one losing trade in ten and you only lost one. There is nobody to blame for the loss and there is no reason for you to be upset. In fact, this is a balancing act and your system shall plan and make up for the loss.

Change your strategy:

There are some instances when you would have to change your strategy. You will have to do that only

a) if you are losing big

b) if you are losing very frequently or

c) if you are losing steadily over a period of time.

The question you must ask yourself if you find yourself in any of the above three situations is “Am I implementing the trading plan and strategies correctly?” If your answer is a “no”, all you need to do is practice a little bit of self control and discipline. Not sticking to the plan or taking avoidable risks can be costly.

If you have problems sticking to the plan, open a micro account and trade with 10% of your normal lot size. Keep trading without straying from your plan until you are making profit. Return to your normal lot size only after this exercise is a success.

Enroll in FOREX trading courses:

You can also enroll yourself in useful FOREX trading courses. This would be especially beneficial if it is your system that is creating you problems. Work on mastering the technical analysis. Once you have mastered it, you will be empowered to employ newer strategies while trading. You could test these strategies with a demo account. Enrolling yourself in a FOREX trading course can also boost your confidence to a large extent.

Maintain a trading dairy or trading journal:

A trading dairy or a trading journal is a kind of book you can say that you need to maintain with all the trades you won and lost and with all the information of how and why you won the trades or lost the trades. This information can be used in future trades. If you don’t maintain this, you may do the same mistakes again and again and lose the trades again and again. So always maintain trading journal and go through this information in your free time so that you remember the mistakes you did and won’t do them again.

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MACD Divergence Trading – A very powerful forex trading technique

November 8, 2009 By Raj 5 Comments

This is a very powerful forex technique. It can be used as following. The first one is lower lows and higher lows. The second one is called higher highs and lower highs. Lets see the first one.

Lower lows and higher lows: In the following picture, the upper part is the chart(you can say candlesticks chart) and the lower part is the MACD graph. As see in the picture, the chart shows the lower lows. That means the 2 dip is lower than the 1st dip. But at the same time if you observe the MACD graph, the first dip is lower than the 2nd dip. This forms divergence in a downtrend. When this is formed the trend will be reversed.

MACD Lower lows and Lower Highs:
The above picture showing lower lows in the chart but lower highs in MACD

The above picture showing lower lows in the chart but lower highs in MACD

But how to enter the trade and exit the trade? There are different ways to enter the trade.

1) You can use the MACD indicator itself to enter the trade. First let us see the MACD indicator setitngs.
MACD indicator Settings: You can use the default settings provided by the metatrader MACD indicator.
Parameters:
Fast EMA: 12
Slow EMA: 26
MACD SMA: 9

Colors:
Main: Main is the color used by the bars in the MACD histogram. You can select any color you want but I prefer black color for this. You can also set the width of the bars in the MACD histogram.
Signal: Singnal is the color used by the moving average line on the MACD histogram. I used red color in this.

Entering and exiting the trade with MACD:
above picture showing entering and exiting the trade with MACD

above picture showing entering and exiting the trade with MACD

Entry: Now lets see how to enter the trade using MACD itself. Once you observe that lower lows is forming on the candlestick chart and a lower highs is forming on the MACD graph check the MACD graph. Once the MACD moving average line is leaving the MACD bars, that means the MACD moving average line started forming below the bars with out touching any MACD histogram bar you can enter the trade. In the folloiwng picture you can see the words “Entry” where the MACD moving average line left the bars and started forming below the bars. This is the entry point.

Exit: There are two kinds of exits. Below the zero point line and above the zero point line.

Below the zero point line: Once you enter the trade wait until the MACD moving average line touches the MACD histogram bars. Once the moving average line touches the histogram bar and if it is below the zero point line exit the trade.

Above the zero point line: Once you enter the trade and the histogram bars move above the zero point line the moving average line touches the histogram bars at the zero poing line. Once we are abvoe the zero point line wait until the moving average line leaves the histogram bars and start forming above the histogram bars. Once the moving average line started forming above the histogram bars exit the trade. In the picture below you can see the words “Exit” where the MACD moving average line left the histogram bar above the zero point line. You can exit the trade at this point.

2) You can use a third indicator to enter the trade. You can use Stochastic oscillator or Relative Strength Indicator (RSI) to enter the trade.

Check the following picture. The following picture shows a stochastic oscillator below the MACD.

Entering the trade with stochastic oscillator:
above picture showing entering the trade with stochastic oscillator

above picture showing entering the trade with stochastic oscillator

Stochastic Oscillator Settings:
You can use the default settings provided by the metatrader stochastic oscillator settings.
%K period: 14
%D period: 3
Slowing: 3

The levels are 20 and 80. When the moving averages cross below the 20 level that means it is oversold region. When the moving averages cross above the 20 level you can enter the trade. When the moving averages coress above the 80 level they are entering an overbought region. When they are trying to cross below the overbought regioun you can exit the trade.

You can use the Relative Strength Indicator (RSI) also. The following picture shows a relative strength index indicator below MACD.

Entering the trade with relative strength index
above picture showing entering the trade with relative strength index

above picture showing entering the trade with relative strength index

Relative Strength Index Settings:
You can use the default settings provided by the metatrader relative strength index settings.
Period: 14

The levels are 30 adn 70. When the relative index line crosses below the 30 level that means that the currency is oversold. When it crosses above the 30 level you can enter the trade. When it crosses above the 70 level that menas the currency is overbought. When it is trying to cross below the overbought region you can exit the trade.

3) Candlestick Formations: You can use the candlestick formations also to enter the trade. If any engulfing cnadlesticks formed at the bottom and if the RSI or Stochasticks are in the oversold region then you can enter the trade.

The second one is higher highs and lower highs. Lets see this.

Higher highs and lower highs: In the following picture, the chart shows the higher highs. That means the 2 peak is much higher than the 1st peak. But at the same time if you observe the MACD graph, the first peak is higher than the 2nd peak. This forms divergence in a uptrend. When this is formed the trend will be reversed.

MACD higher highs and lower highs
Above picture showing higher highs on the chart but lower highs on MACD

Above picture showing higher highs on the chart but lower highs on MACD

You can use the the same techniques above to enter the trade.

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Technical Indicators

November 5, 2009 By Raj Leave a Comment

Forex trading can be divided into two ways. Fundamental analyis and technical analysis. Fundamental Analysis is mainly based on economical news. Traders observe the news around the world for different currencies and take action accordingly in the trading. Technical analyis is predicting the price movements based on the past price movements. Technical analyis helps investors to predict what is likely to happen in the future, whether the prices go up or down. Technical analyis uses a variety of charts to predict the price movements.

So, what are technical indicators? Technical indicators are tools that help you to do the technical analysis. There are many technical indicators available for doing this. For example Bollinger bands is one of the technical indicator which is used by many forex traders. Relative Strength Index is another technical indicator used by many forex traders to know the over bought and over sold markets.

Technical indicators can be divided into different categories.

1) Leading Indicatos: A leading indicator is the one which gives you indications prior to the actual price movements. For example if there is a price reversal going to occur a leading indicator will give you indication about this possible price reversal before the actual price reversal occurs. That means the indicators lead the price movements so these are called leading indicators.

2) Lagging indicators: A lagging indicator is the one which gives you indications after the actual price movements occur. For example if there is a price reversal going to occur a lagging indicator will give you indication about this price reversal after the actual price reversal. That means the indicatos lag the price movements so these are called lagging indicators.

3) Trend Indicators: Trend indicators are used to indicate the direction of a trend. The basic rule that many forex traders say and follow is “Trade with the trend”. So these indicators are very useful to know the direction of the trend.

4) Volume indicators: Volume indicators show the amount of trades in a particular time frame. The higher the volume means there are more traders in the market that means more liquidity and less volatility. Traders look for increase in volume slowly in the direction of trend to enter the market. If there is any decrease in the volume that means that is a possible ending of trend.

5) Momentum indicators: Momentum indicators are oscillators. These can be used to find the overbought and oversold markets. If the price reaches the overbought region that means the buying of the currency pair is saturated and there is a possible reversal or a range market for sometime until a new trend starts. The same thing is also with the oversold region.

6) Volatility Indicators: Volatility means no trend. The prices won’t go in a particular direction. Volatility indicators can be used to find if the currency pair is going through any volatility or not.

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How to create your own templates in metatrader for different techniques?

November 1, 2009 By Raj 1 Comment

Metatrader is one of the forex platform that is used by many forex traders for forex trading. There are many indicators that are available with metatrader for the convenience of forex traders. When you first install metatrader and open it, it comes with a black background with a grid on it and it’s a line graph. If you change it to a candlestick graph the bearish candlesticks are shown in white color and the bullish candlesticks are shown in black color. You may want to change the properties of the graph like changing the background color, changing the color of bullish and bearish candlesticks, removing the grid etc. But once you close the graph you will lose all your modifications and once you open a new graph you will see again the original graph with black background etc provided by metatrader.

Default metatrader charts

Screenshot showing the default metatrader chart with black background etc

But there is a way of saving your work of modifications to the charts as a “Template”. So even though you close the the graph and open it again you can open the template for that currency pair and all your work will be retrieved again. Not only for the currency pair you did the modifications, you can apply the same template to the other currency pairs also and you will see your modifications for other currency pairs also. In this article I will explain you how to do these modifications, what are the different options available, how to save your modifications as a template, how to apply your templates to different currency pairs etc.

To start with, open your metatrader and open any currency pair. It will show the default display of metatrader which is a black background, line graph etc. Click on the “candlesticks” icon on the top bar. Click on the “Zoom In” icon on the top bar two times so that you will be able to see the candlesticks chart clearly.

Metatrader showing the candlesticks and zoom in options

Metatrader showing the candlesticks and zoom in options

Once this is done go to the properites of the chart. You can go to the properties of the chart in three different ways. Click on “Charts” on the tool bar and you will see the “Properties” option at the bottom and click on it. Or you can right click on the chart and you will see the properties option and click on it. Or you can press “F8″ button on your keyboard and you will see the properties directly.

Click on chart on the tool bar or right click on the chart to see the properties or type F8 on the keyboard

Click on chart on the tool bar or right click on the chart to see the properties or type F8 on the keyboard

On the properties you will see two tabs. “Colors” and “Common” tabs. You don’t need to worry much about the “Common” tab. We mainly work with the “Colors” tab. You will see the following options on the colors tab.

Metatrader chart properties showing different options

Metatrader chart properties showing different options

Color Scheme: Metatrader gives some of the options like “Yellow on Black”, “Green on Black” and “Black on White”. You can select these options, if you like, your chart will change accordingly to the color scheme.

Background: Using this option you can change the background color of the chart. Change it white background.

Foreground: Change it black color if you change the background color to white. If you don’t change it you can’t see the dates on the horizontal scale at the bottom and the price levels on the verticle scale on the right side bar.

Grid: If you want to have the grid on your chart you can leave it as it is. Otherwise you can select “None” to remove the grid. I don’t want to have any grid on my chart so I selected none for it.

Bar Up and Bar Down: This option is for the outer line of the candlesticks. Select “Black” Color for both of these options.

Bull Candle: This means “Bullish Candlestick”. This is for the inside color of the candlestick that is raising. Select white color for this.

Bear Candle: This means “Bearish Candlestick”. This is for the inside color of the candlestick that is falling. Select red color for this.

Line Graph: If your graph is a line graph you can select the color of your line graph. But since your graph is a candlestick chart it won’t be much useful to you. But you can still use it for the following purpose. If you set this to any color other than black or white, the candlesticks where the open and close prices are equal will be set to this color. That means the pin bar formations, dojis etc will be set to this color and if your trading method uses these pin bars or dojis you can easily find these formations as the color of those candlesticks will be different. Set this color to “Blue” Color and you will see this effect later.

Volume, Ask and Stop Lines: You can leave these options as it is.

Now once you set all the above options as mentioned, you will see the chart as follows. You can change any of the above options to any different colors you like. The above colors are for example purpose only.

Metatrader showing chart with different colors

Metatrader showing chart with different colors

At any time if you don’t like the colors you set, you can reset them back to the default one by clicking on the “Reset” button and you can start again setting the colors.

Templates: Now you have done some work on changing the colors and if you don’t save it, once you close the graph for the currency pair and open the currency pair again, you will see the default colors like black background etc. So you have to save your changes. This is where the “Templates” come into play. To save your changes click on the “Templates” icon on the top bar. You will see the option “Save Template”. Click on it. It will open the default templates folder. Give some name to the template like “Clean Template” or “My Template” etc. I am giving the name “Clean Template” to it. Make sure that the “Save as type” is showing the template extension as “.tpl”. The templates should have the extension “.tpl” to load them later.

Metatrader templates option to save the template

Metatrader templates option to save the template

You can also save your template by right clicking on the metatrader chart and you will see the option “Templates” and if you put your pointer on it, it will show the options “Save Template”, “Load Template” etc. You can use the “Save Template” option here to save your template.
Saving a template in metatrader

Saving a template in metatrader

Once you save this template to check if it is working or not close the chart and open the chart again. You will see the default chart. Click on the “Templates” icon on the top bar again and you will see the template you saved “Clean Template” on the list. Click on it and your chart will be changed to your template you have done earlier. Cool. Huh.
Opening a template in metatrader

Opening a template in metatrader

You can also use this template (your changes) for any other currency pairs also. Open any other currency pair and go to templates button, click on it and click on the “Clean Template” option and the new currency pair chart will be changed accordingly.

Now you have a clean chart with your modifications. Add any indicator to it like alligator indicator. Go to the templates button again and save it as a new template like “Alligator Template”. Or use any combination of indicators and give them different names. You can use these templates and change your charts easily instead of dragging the indicators and setting the options each and every time.

Metatrader templates option showing the alligator template

Metatrader templates option showing the alligator template

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Maintaining a trading journal – A very important characteristic that every forex trader should have

October 25, 2009 By Raj Leave a Comment

Do you know what is a forex trading journal? Do you know the importance of maintaining a forex trading journal? A trading journal is a record or a book which keeps track of all of your successful or unsuccessful trades. It is very important for you to keep track of all your trades, whether you win the trade or lose the trade as you can use this information for future trades as a reference. Lets say entered a trade with some reason in specific trading hours, but you lost the trade. The technique might have worked for you earlier but not in this trading hours. With this trade, you come to know that the technique won’t work in the specific trading hours. If you don’t note it down or keep track of it, in future you may do the same mistake again and you will lose the trade again. A trading journal can be used to refer all the mistakes you did in the past so that you won’t do them again. All successful forex traders maintain a forex trading journal.

So if you want to maintain your own trading journal what are the important things that you have note down. The following are some of the things that you can note when you start writing your own forex trading journal.

Trading Currency Pair: Note down the currency pair you are trading or you have traded for example EURUSD, GBPUSD etc.

Long or Short: In forex terms Long means buying a currency pair and short means selling a currency pair. Record whether you bought the currency pair or sold the currency pair.

Trade Won or Lost: Record whether you won the trade or lost the trade. If you won the trade note down the reason why you won the trade like any technique you used, any economic news you used to enter the trade etc. Also note down the exit strategy you used for coming out of the trade. If you lost the trade then also you have to note down the reasons for losing the trade.

Trading time: Record the day and time you entered the trade. Also record the time zones you entered like asian time zone, london timings, NY timings etc. This is very important as some trades may work only in specific timings and this information, you can use in future.

Entry Price, Exit Price and No. of Pips: Record the entry price and exit price and also the number of pips you lost or won.

No. of lots you traded: Record the number lots you traded.

Any techniques used: Record any techniques or methods you used for your trading.

Screenshots: Screenshots are very important when you are maintaining a trading journal. As all of us know a picture speaks a thousand words. Even if you note down all the above points and if you don’t have a picture, in future, you may not be able to understand your own trade you took. So saving a picture of the trades you are doing is very important.

The above are some of the things that you have to note down if you want to become a successful trader. You may also note down any additional remarks, if you want.

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What Is “Spread” in Forex Market?

September 15, 2009 By Raj 1 Comment

SPREAD:

How do forex brokers get profit from the trading. This is from spread. Spread is simply the difference between bid or sell price (the exchange rate at which the trader sells the currency) and the ask price (the exchange rate at which the trader buys the currency). Generally the buy price is a little more than the sell price.

Lets say for EURUSD the bid and ask prices are as follows.

Bid Price: 1.2145
Ask Price: 1.2147

If you check the above the difference between Bid and Ask price is 2 pips. Lets say you are trading with a standard lot with a leverage of 1:100. So the 2 pips will be $20. This will be charged by the broker. So if you enter the trade it will show you that you are in a loss of $20 initially as this 2 pips is charged by the broker. This initial spread difference need to be overcome by the trader to come into profits.

If you want to know different common terms like pip, leverage etc check the following.

  1. Pip in forex trading
  2. Leverage in forex trading

The spread varies for each and every currency pair and it may vary from time to time.

The major currency pairs EURUSD, USDJPY, USDCHF and GBPUSD usually stay between 2 and 5 pips.

Variable and Fixed Spread Brokers:

There are two types of brokers based on the spreads they offer. Variable and fixed spread brokers. Variable spread brokers generally keep the spread small during quite markets but change it during faster and more volatile markets. Constant spread brokers offer a little wider spread but the spread will be constant all the time.

Spread on trading platforms:

Generally the trading platform offered by you broker shows the Bid price and Ask Price using which you can easily see the spread for different currency pairs. For example “Metatrader” is one of the most common trading platform provided by most of the brokers and if you install it you can see the bid and ask prices and you can calculate the spread. Please check the following image.

Bid and Ask prices Of Different Currency Pairs

Bid and Ask prices Of Different Currency Pairs

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what is a “PIP” in Forex Trading?

September 15, 2009 By Raj Leave a Comment

PIP in Forex Trading:

We have been using the term PIP. PIP is “Price Index Point” or “Price Interest Point”. But what exactly does it mean? Most of the currency pairs exchange rate is represented as X.XXXX (Four decimal currency pairs). That means there will be four digits after the decimal point. We can say that the change in one point in the fourth decimal point can be said as on pip.

Calculating the pips – Four Decimal Currency Pairs:

For example, take the currency pair EURUSD. The exchange rate is 1.4530. Because of the currency fluctuations lets the exchange rate changed to 1.4531. The difference is 0.0001. The change in the fourth decimal point is 1. This is called 1 pip for these currency pairs.

Calculating the pips – Two Decimal Currency Pairs:

But some currency pairs will have only two digits after the decimal point. For these currency pairs one point change in the second digit after the decimal point is called one pip.

For example take the currency pair USDJPY. Lets say the exchange rate is 90.27. Because of the currency fluctuations the exchange rate changed to 90.28. The difference is 0.01. The change in the second digit is one point which is one pip for these currency pairs.

Calculating the pips more easily:

How to calculate the pips more easily. If the currency pair has four digits after the decimal point multiply it with 10,000 then get the difference which is nothing but the pips.

Lets say the EURUSD exchange rate is 1.4534. Multiply it by 10,000 and it becomes 14534. Lets say because of the currency fluctuations the exchange rate changed to 1.4634. Multiply it by 10,000 and it becomes 14634. The difference is 14634 – 14534 which is 100 which is nothing but 100 pips. So we can say that the EURUSD currency pair has increased in 100 pips.

Lets say the GBPUSD exchange rate is 1.7691. Multiply it by 10,000 and it becomes 17691. Lets say because of the currency fluctuations the exchange rate changed to 1.7591. Multiply it by 10,000 and it becomes 17591. The difference is 17591 – 17691 which is -100 which is nothing but 100 pips. So we can say that the currency pair has decreased in 100 pips.

The currency pairs like USDJPY, CADJPY etc have only two digits after the decimal point. For these currency pairs use 100 to multiply and take the difference and you will get the number of pips.

If you are using the meta trader platform it is very easy for you to see the number of pips difference on the charts. Select the crosshair  tool. At one point on the chart click the mouse and drag it. It will show you the number of pips difference. Check the following picture.

Checking The Number Of Pips Using Crosshair Tool In Metatrader

Checking The Number Of Pips Using Crosshair Tool In Metatrade

Value of Each Pip:

But what exactly is the value of each pip? This differs for each currency pair. Generally the value of each pip depends on the following.

  • Lot Size
  • Number of Lots
  • Pip Size

PIP Value = Lot Size X Number of Lots  X PIP Size

Example – EURUSD:

Lets calculate the pip value for EURUSD for 1 Standard Lot with a leverage of 1:100.

PIP Value = 100,000[Lot Size for 1:100 leverage] X 1[Number of Lots] X 0.0001[PIP Size] = 10 Dollars

So for one standard lot with a leverage of 1:100, if you get 1 pip profit means you get a profit of $10.

Lets calculate the pip value for EURUSD for 1 Standard Lot with a leverage of 1:400. For 1:400 leverage the lot size will be 400,000.

So the PIP value is

PIP Value = 400,000[Lot Size for 1:400 leverage] X 1[Number of Lots] X 0.0001[PIP Size] = 40 Dollars

So with more leverage the pip value increases. Thats why its more profitable at the same time it is more risky also.

Example – EURGBP:

Lets calculate it for another pair EURGBP for 1 standard lot with a leverage of 1:100.

PIP Value = 100,000[Lot Size for 1:100 leverage] X 1[Number of Lots] X 0.0001[PIP Size] = 10 British Pounds.

But this has to be converted into dollars. Lets say the current exchange rate is 1.5430. So this will be 10 X 1.5430 = $15.34. So for this currency pair each pip will be $15.34.

For mini lots with a leverage of 1:100 the lot size will be 10,000 and you can calculate the pip value as above.

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“Margin and Margin Call” in Forex Trading

September 15, 2009 By Raj Leave a Comment

Margin and Margin Call:

Margin is the minimum amount of money you have to keep in your account before you go for trading. This is generally determined by the broker.

Lets say the forex broker has set $300 as the margin for 1 lot for the currency pair you are trading. And if you have $1000 in your account. Lets say 1 pip is $10 for the currency pair you are trading. If the trade goes against you and if you lose more than 70 pips the broker will close your trade to maintain the minimum margin required so that you won’t lose more money than you have in your account. So you don’t have to worry about paying back to the broker.

The closing of the trade by the broker to maintain the margin is called Margin Call.

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