WHAT IS LEVERAGE Leverage is a tool that increases the purchasing power of the trader’s deposit. The mechanism is funded by the broker, or rather the liquidity provider working with the broker. The leverage mechanism is very simple. The higher the leverage is, the more funds we can invest in trading. Simply put, leverage is kind of a bank loan. But it is much cheaper, and the borrowers usually risk only their own funds on the account.
WHAT IS A PIP A pip (percentage in point) is the minimum unit of measurement to express the change in value between two currencies in the Forex market. In currency pairs, 1 pip is often one hundred-thousandth, that is, the fifth decimal place in a currency quote (0.00001). For the derivatives, one pip is usually one hundredth (0.01). Simply put, a pip is the last decimal place in a quote. The pip cost is directly affected by the lot size.
LOT SIZE IS The lot size is the number of currency units expressed in the quote currency that compose one whole contract. The quote currency is the currency that used to value the asset price. In the EUR/USD currency pair, the base currency is the EUR. Common lot types are: Standard,Mini-lot (0,1 of a standard one), Micro-lot (0,01 of a standard one), Nano-lot (0,001 of a standard one).
LOT AND LEVERAGE RELATION The relation between these two concepts is that both these figures affect the total trade cost. The difference is that this influence is made in opposite directions. The larger is the lot size, the larger is the transaction volume, and, consequently, its value (I mean the security deposit you must have to open the position). However, the higher is the leverage, the less money is required for the trade margin and therefore, the less is the trade cost.
CONCLUSION Forex lot size and leverage are the basic concepts for every forex trader. It is of key importance to understand them. Experiment with the calculator and the table to understand how the lot size and leverage affect your position size in particular and your trading in general. This practice will help you develop your own strategy and determine the “best” leverage for your trading goals.
Dear followers, let me know, what topic interests you for new educational posts?
Dear followers, let me know, what topic interests you for new educational posts?
zAngus
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@SignalProvider, in terms of what I look for in order to select posts for an EP, I like to see something I haven't seen before that I think others would be interested in. I particularly like educational type posts where someone with more experience can show others trading approaches using chart examples of setups specific to that trading method, how to use different TradingView tools etc.
StewySongs
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Awesome job.
VasilyTrader
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Good luck!
TopTradingSignals
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Cheers!
Mihai_Iacob
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Nice Educational article for bigenners Thanks for posting your work
AnabelSignals
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Great chart, bro!
LegionQ8
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Agreed with your opinion, it's more than possible
FirstNameHelen
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I guess we have a similar view on this pair, well done!