You cannot manage risk without being able to work out what a trade is worth. This lesson gives you the four calculations you will use every day.

Pips

A pip is the standard unit of price movement.

• Most currency pairs: 0.0001. EUR/USD moving from 1.0850 to 1.0865 is 15 pips.
• Yen pairs: 0.01. USD/JPY moving from 150.20 to 150.65 is 45 pips.
• Gold: 0.01, one cent. Indices: 0.1 points.

Lots

A lot is the standard position size.

You can trade fractions: 0.10 lots is a mini lot, 0.01 a micro lot.

Pip value

Pip value = pip size × units, in the quote currency.

• 1 lot EUR/USD: 0.0001 × 100,000 = $10 per pip.
• 1 lot USD/JPY: 0.01 × 100,000 = ¥1,000 per pip, about $6.60 at 151.
• 1 lot gold: 0.01 × 100 = $1 per cent, so a $10 move in gold is $1,000.

The platform converts every result into your account currency automatically.

Leverage and margin

Leverage lets you control a position worth more than the money set aside for it. That set-aside money is the margin.

Margin = position value ÷ leverage.

One lot of EUR/USD at 1.0850 is worth $108,500. At 1:100 leverage the margin is $1,085.

Leverage does not change how much you win or lose per pip. A 1-lot EUR/USD trade gains or loses $10 per pip whether your leverage is 1:30 or 1:100. Leverage only decides how many such positions your equity can support at once.

Margin level and stop out

Margin level = equity ÷ used margin × 100%.

If losses push the margin level below 50%, the platform closes positions, starting with the biggest loser, until it recovers. On an evaluation account the loss limits will normally stop you long before that.

Worked example

You have $100,000 and want to risk $500 on a EUR/USD trade with a 25-pip stop.

1. Risk per pip allowed: $500 ÷ 25 = $20.
2. Pip value per lot: $10.
3. Position size: $20 ÷ $10 = 2 lots.
4. Margin used at 1:100: about $2,170.