Hands, leverage, profits and losses

In the past, spot payments were made at a specific amountforeign exchangeThe transaction is called a lot. The standard level for first-hand skills is10Ten thousand units. Of course, there are also mini hands, micro hands, and nanohands, whose sizes are1Ten thousand units1,000Unit and100Company.

You already know that currency is measured in points, which is the minimum unit of measurement for currency.

Assuming we need to utilize10ten thousand units(1Standard hand)The currency. In this case, we will calculate the monetary value represented by a point

  1, USD/The Japanese yen exchange rate is119.80

   (0.01/119.80)*100,000=8.34dollar/spot

   2, USD/The Swiss franc exchange rate is1.4555

     (0.0001/1.4555)*100,000=6.87dollar/spot

The formula is slightly different when the first quoted currency is not the US dollar

   1, Euro/The US dollar exchange rate is1.1930

     (0.0001/1.1930)*100,000=8.38dollar/spot

     8.38dollar/spot*1.1930=9.99734dollar/spot

     9.99734After rounding to the decimal point, it is approximately10dollar/spot

   2Pound Sterling/The US dollar exchange rate is1.8040

      (0.0001/1.8040)*100,000=5.54dollar/spot

      5.54dollar/spot*1.8040=9.99415dollar/spot

      9.99415After rounding to the decimal point, it is approximately10dollar/spot

For the calculation of point values, your broker may have different conversion methods, but regardless of which conversion method, they can tell you the value represented by a certain currency for a point at a specific time. As the market develops, the point value of currency pairs will also change with the exchange rate of the currency pair you trade.

What is leverage? What the heck is leverage?

You may wonder how retail investors like you can trade such a large amount of currency. You can imagine that your broker lent it to you100,000Use US dollars to purchase currency. And it only requires you to give it1,000As a credit deposit, the US dollar will hold the funds on your behalf. Doesn't it sound too beautiful and feel too unreal? This is the working principle of leveraged trading.

The leverage ratio you use depends on your broker and the level you can afford.

Generally speaking, brokers will first require traders to deposit a fund in their account, which is commonly known as "account margin" or "initial margin". Once you deposit your funds, you can use them for trading. Brokers will also specify the required margin level for each transaction.

For example, if the leverage ratio is100:1(or1%Position requirements)Are you planning to proceed100,000Trading in US dollars, however, your account only has5,000The US dollar. It's not a big deal because your broker will be5,000Take out the US dollar1,000USD, as your down payment or "deposit", allows you to "borrow" the remaining funds. Of course, any losses or profits will be deducted or increased in your account's cash balance.

The minimum margin requirement varies by broker. In the previous example, the broker allowed1%The deposit. This means that every time100,000Trading in US dollars, the broker wants you to deposit1,000Use the US dollar as a trading position.

How should I calculate profits and losses?

Now that you know how to calculate point value and what leverage is, let's take a look at how to calculate profit or loss.

Let's buy US dollars and sell Swiss francs.

   1. Your quote is1.4525 / 1.4530Since you are buying US dollars, therefore1.4530The 'selling price' will be your 'buying' price, or the price at which other traders intend to sell.

   2. you1.4530Spot buying1Standard hand(10ten thousand units)dollar/Swiss franc.

   3.After a few hours, the exchange rate changed to1.4550You plan to close your position.

   4. dollar/The latest quotation for Swiss francs is1.4550/1.4555Since you are planning to close your position and initially bought, now that you are closing your position, you need to sell US dollars/Swiss Franc, therefore you must execute1.4550The 'buying price'.

  5. 1.4530and1.4550The price difference between them is0.0020, or20Points.

   6. Calculate your profit situation:(0.0001/1.4550)*100,000*20=6.87dollar/spot*20spot=137.40dollar

Bid-Ask Spread

Remember, when you enter or exit a trade, you are subject to the spread in the bid/ask quote.

When you buy a currency, you will use the offer or ASK price.

When you sell, you will use the BID price.

Next up, we’ll give you a roundup of the freshest forex lingos you’ve learned!

Remember, when you enter or exit a trade, you must be clear about the 'buy price'/The price difference of the "selling price" quotation. When you buy a currency, you will execute the sell price, and when you sell, you will execute the buy price.

In the next lesson, we will introduce you to some forex professional terms.