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Where does the benefit? The pip and the lot

Already saw that in forex is buy and sell currency by pairs, so the idea is the exchange between currencies waiting for that the price of this Exchange vary to our to please.


Let us take an example that it makes everything easier to understand:

Suppose that you have an account in USD, and that shopping with these USD 10 thousand euros. If the quote for the EUR/USD pair current price is from 1.2500 to buy €1 must pay $ 1.25, or what is the same, if you sell € 1 pay you $ 1.25. Therefore, the 10 thousand EUR cost you 12,500 USD.

In three days the price of the EUR/USD pair is at 1.3220, decide to sell the 10 thousand euros that you purchased (close the purchase transaction that you opened three days ago). To the make it get 13,220 USD, with a difference to your favor of 720 USD.

Paremonos a moment, how it interprets the price of quote?


Take, for example, the quote for the EUR/USD pair from 1.3220. This is the rate of exchange between the currencies that make up the pair.

The first currency is called base currency and the exchange rate (price quote, "quote") is the amount of the second currency you need to buy a unit of base currency. In our example, the price of the EUR/USD pair 1.3220 means we need 1.322 dollars for one euro, or, what is the same, with a euro can buy 1.322 dollars.

Therefore, the price of a pair of currencies, the given exchange rate, quote indicates the number of counter currency needed to purchase one unit of the currency base of the pair.

Not the same when you buy than when you're selling? Yes, changing the terms of order. Selling exchange rate indicates the number of units of the counter currency you get to sell a unit of base currency. In our example indicates that 1.322 USD are obtained to sell 1 EUR.

With anything seen so far you must be clear that operations in forex basically mean the purchase of a currency and simultaneous sale of another, or vice versa.

If you buy the EUR/USD pair, means that you buy euros and sell dollars, if you sell EUR/USD means that you sell euros and buy dollars. Fix you that the currency that have called base of the pair is the base of the operation. Now, which should make, sell or buy a certain couple? You must buy (go long) a couple if you think that the exchange rate will raise and sell (go short) If you think it will lower, the decision, as you see, implies a forecast of future and analysis tools that we will see the eFXto forex course are used for this.

Remember:


If you decide to buy what you expect is the base currency to acquire more value than the counter currency of the pair, i.e. that its exchange rate rise.
If you decide to sell, what you want to is that the currency will devalue and have less value that the counter currency of the pair which you will in short, that the ratio of exchange of the pair lower.
Calculating the benefit: the pip and the lot

Probably you have already heard the term pip (points) and batch. Let's do some math.



The pip: the amount of pips or points measures the difference between the price of input and the price of output in an operation. So if you've entered purchase in EURUSD at 1.2500 and sales at 1.3220, the amount of pips obtained is + 720, if this same operation had been sold, the amount of pips had been - 720. If you look at the price of quotation, you can see that in this case the minimum variation that can occur is 0.0001, and this will be 1pip, making a difference 1.3220 (output) - 1.2500 (input) = 0.0720, you get 720 points, positive. In other pairs with the price quote with two decimal places the minimum change in price will be 0.01, as for example, USD/JPY, the price of this pair is of the form 99.27. Then, the value of a pip is the minimum differential between the price which an operation is performed if we carry out operations at the prices of example of this section, the value of a pip on EUR/USD will be 0.0001/1.3220, and USD/JPY 0.01/99.27.
Lot: to spend the amount of pips to money won or lost, it is necessary to know the volume of the operation, that is, the amount of lots that have been buying or selling in a currency pair. A standard lot is equivalent to 100,000 currency units base, minilote 10,000 and 1,000 microlots.

We calculate the benefit if you got + 20 pips in an operation with a minilote in EUR/USD, the operation was purchase at 1.3230 and was closed at 1.3250. Look what it means: you bought euros and to close the operation sold them. The minimal increase (1 pip) is 0.0001, if your price quote out of operation is from 1.3250, profit per pip is: (0.0001/1.3250)*10.000=0.75. Now searched well, sold euros then this result is normally expressed in euros, your account will be in USD, we need a more calculation to USD, 0.75 euro/pip * 1.3250 usd/euro = 0.997

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