Let's do a little math. Surely you have ever heard the term "basis points (pips) and" contracts "(lots), so here they explain what they are and how they are calculated. These data are fundamental to all Forex traders, so take your time with such information. Not even dare to think about trading, until you fully understand the values of the basics and how to calculate profit and loss. What the heck is a Pip? The most common increment of currencies is the basic point (Pip). If the EUR / USD moves from 1.4410 to 1.4411, that is ONE PIP. A pip is the last decimal of a quotation, with which you measure your profit or loss. As each currency has its own value, it

is necessary to calculate the value of a pip of it. Those where is quoted first the U.S. dollar (USD), would handle the following calculation: Take the rate USD / JPY (USD / Yen) to 101.80 (note that this pair has only two decimal places, while most have four). In the case of USD / JPY, a pip would be .01 Therefore: USD / JPY: 101.80 01 divided by the representative rate = pip value .01 / 101.80 = 0.0000982 Looks like a very long number but later we will talk about its length. USD / CHF (USD / Swiss Franc) 1.0624 0001 divided by the representative rate = pip value .0001 / 1.0624 = 0.0000941 USD / CAD (U.S. $ / Canadian Dollar): 1.0721 0001 divided by the representative rate = pip value .0001 / 1.0721 = 0.0000933 Should not the U.S. dollar quoted first and we want to know its value, we must add another step. EUR / USD (Euro / USD): 1.4393 0001 divided by the representative rate = pip value Then .0001 / 1.4393 = EUR 0.00006948 But we need to go back to U.S. dollars, so we add another calculation, which is EUR x rate representative Then 0.00006948 x 1.4393 = 0.0001 GBP / USD (British Pound / USD): 1.7975 0001 divided by the representative rate = pip value Then .0001 / 1.7975 = GBP 0.0000556 But we need to go back to U.S. dollars, so we add another calculation, which is GBP x Exchange rate Then 0.0000556 x 1.7975 = 0.0000998 And when we round would give us 0.0001 Probably you are thinking you need to do all these calculations, and the answer is NO. Almost all Forex brokers calculate this for you automatically. It is better for you to know how they are calculated. In the next section, we discuss how these seemingly insignificant amounts can have logic. What the hell is a contract? The Forex Spot (or cash) operates by contracts. The initial contract amount is $ 100,000, and there is a minicontrato - to the tune of $ 10,000. As you know, currencies are measured in pips - this being the smallest increment. To make these tiny increments, you need to negotiate large amounts of a particular currency, to detect any significant gain or loss. Assume that we will use a contract, the amount of $ 100,000. Now, recalculate some examples to see how it affects the pip value. USD / JPY to a representative rate of 119.90 (.01 / 119.80) x $ 100,000 = $ 8.34 per pip USD / CHF at 1.4555 representing a rate (.0001 / 1.4555) x $ 100,000 = $ 6.87 per pip Where, in praise not the U.S. dollar quoted first the formula is slightly different. EUR / USD at 1.1930 representing a rate (.0001 / 1.1930) X EUR 100,000 = EUR 8.38 x 1.1930 = $ 9.99734 rounded to give us $ 10 per pip GBP / USD at 1.8040 representing a rate (.0001 / 1.8040) x GBP 100,000 = 5.54 x 1.8040 = 9.99416 rounded to give us $ 10 per pip. Maybe your broker has a different arrangement for calculating pip value on the contract amount, but - whatever the way they do - they will tell you what the pip value for the currency you with which it is operating by then. If the market moves, so it will pip value - depending on the currency which is trading at that time. How the hell calculate profit and loss? Now that you know how to calculate pip value, let's look at how to calculate your gain or loss. Buy sell U.S. Dollars and Swiss Francs The rate is quoted at 1.4525 / 1.4530 and - since it is buying dollars - you will be working on 1.4530, the rate at which traders are prepared to sell. So you buy a $ 100,000 contract to 1.4530 Hours later, the price changed to 1.4550 and you decide to close their operations. The new quote for USD / CHF is 1.4550 / 1.4555. By closing its operations and having initially bought to enter the transaction but must sell to close their operation in order to make the price of 1.4550. In this way, operators will be ready to buy. The difference between 1.4530 and 1.4550 is .0020 or 20 pips. Using our formula above, we now have (.0001/1.4550) x $ 100,000 = $ 6.87 per pip X 20 pips = $ 137.40 Remember that - when you enter or exit an operation - is subject to the difference in buying and selling. When you buy a currency you will use the offer price (ask), and when you sell you will use the selling price (bid). So when you buy a currency you pay the difference when entering the transaction, but not when it comes out, and when you sell a currency, does not pay the difference when entering the transaction but to leave. What the heck is Leverage? Perhaps you're wondering how a small investor - like you - can negotiate these large sums of money. Think of your broker is like a bank that puts $ 100,000 in front of you, to buy currencies and all he wants is to give $ 1,000 as earnest money deposit as collateral but need to keep them. Sounds too good to be true? Well, this is how the use and leverage Forex trading works. The amount of leverage you use will depend on your broker and how comfortable you feel. Usually, the broker will need a minimum amount, also known as margin or initial margin account. Once you have deposited your money, you can start trading. The broker also specify how much they need them by position (contract) negotiated. For example, for every $ 1,000 you have, you may negotiate a contract for $ 100,000. So if you have $ 5,000, they could negotiate over up to $ 500,000 in Forex. Security (or margin) minimum for each contract will vary from one broker to another. In the above example, the broker needs a 1% margin. It means that for every $ 100,000 traded, the broker wants $ 1,000 as a deposit on the contract. What the heck is a Margin Call? In the event that the money in your account falls beyond the margin requirements (usable margin), your broker liquidate some or all open positions. This prevents your account from falling into a negative balance, even in a highly volatile market and rapid movements. Example # 1 Say you open a Forex account with permanent $ 2,000 (not a bad idea). Opens a contract of EUR / USD, with a margin requirement of $ 1,000. The usable margin is the money available to open new positions or sustain losses in securities. Since you started with $ 2,000, your usable margin is $ 2,000. But when you open a contract that requires a margin requirement of $ 1,000, your usable margin is - now - from $ 1,000. If your losses exceed your usable margin of $ 1,000, you get a margin call. Example # 2 Say you open a Forex account with permanent $ 10,000. Opens a contract of EUR / USD, with a margin requirement of $ 1,000. Remember, usable margin is the money that is available to open new positions or sustain losses in securities. Prior to the opening d a contract, you have a usable range of $ 10,000, and after open surgery, you know you have $ 9,000 usable margin and $ 1,000 in used margin. If your losses exceed your usable margin of $ 9,000, you get a margin call. Make sure you know the difference between usable margin and margin used. If the equity (the value of his account) falls below your usable margin - due to stock losses, or you will have to deposit more money or your broker liquidate the position to limit your risk as much of it. As a result, you can not lose more than a deposit. If you negotiate on a margin account, it is vital to know what policies your stockbroker, in terms of margin accounts. You should also know that most brokers require a higher margin over the weekends. Perhaps this takes the form of a 1% margin during the week and if you plan to hold the position until the weekend, may be elevated to a 2% or more. The theme of the margin is a delicate matter and some argue that having too much margin is dangerous. Everything depends on the person, since what is important to keep in mind is that you understand fully the policies of his broker, relating to margin, and - well - understands and is comfortable with the risks involved. Some brokers describe their leveraging in terms of a proportion of it, and others in terms of a mark. The simple relationship between the two terms is as follows: Leverage = 100 / Margin Percent Margin Percentage = 100 / Leverage Leverage is presented, in a conventional manner, as a ratio as 100:1 or 200:1