Lot size is a trading unit. For example, 1 lot of London gold is 100 ounces, and 1 lot in FOREX trading represents 100,000 base currency instead of 100,000 dollars. If your base currency is the US dollar, 1 lot represents USD100,000; if your base currency is the Euro, 1 lot means EUR100,000.
|Lot||Number of Units|
A "pip" denotes the minimum unit of change in the price of a financial instrument. In most cases it refers to the last decimal or digit of the price of a financial instrument. Suppose the price of EUR/USD was 1.13452 /1.13460 (bid price/ask price). If the price of EUR/USD is 1.13482 / 1.13490 now, it changes by 0.00030 or 30 pips.
We use a 100,000 unit (1 standard lot) contract to demonstrate how a standard lot affects the value of a pip.
1. The exchange rate of USD/JPY is 119.801, and (0.001 / 119.801) × 100,000 = USD 0.835 / pip.
2. The exchange rate of USD/CHF is 1.00554, and (0.00001 / 1.00554) × 100,000 = USD0.994 / pip.
The formula will be slightly different when the base currency is not the US dollar.
3. Suppose the exchange rate of EUR/USD is 1.19301, then (0.00001 / 1.19301) × 100,000 = about EUR0.838.
Converted into the US Dollar, the value of a pip is 0.838 × 1.19301 = USD1.
Or in the simpliest manner, the pip value may be calculated directly in the counter currency:
0.00001 x 100,000 = $1
The bid price is the price at which you sell the base currency and buy the counter currency in the FOREX market. It is displayed on the left side of the quote sheet. The ask price is the price at which you buy the base currency and sell the counter currency. It is displayed on the right side of the quote sheet. For example, the EUR/USD quote is 1.13452/72 and the ask price is 1.13472. That means you can buy EUR1 for USD1.13472. The ask price is sometimes referred to as the bank bid price. The spread is the difference between the ask and bid price in the quote, i.e., the client's trading cost.
Simply put, leverage gives you the ability to trade beyond your account funds. With leverage, you can double your trading in a certain financial instrument without having to pay all the required funds. This means that you borrow a certain amount of money needed for the investment. So when you trade with leverage, all you pay is part of your position value.
A CFD is a form of leveraged trading. As the amount required to open and maintain a position is called "margin", leveraged trading is known as "margin trading". The term "leverage" is often used to denote that a small fluctuation in the price of a CFD can be magnified into a large change in profit and loss, with the degree of profit and loss depending on the degree of leverage used.
A “2%” leverage (or 1:50) means that a 1% change in the price of the asset will produce a 50% change in the price of the CFD.
For example, a $1,000 balance with a 1:50 leverage ratio has a trading ability of $50,000, allowing traders to purchase financial products worth up to $50,000.
Each time you open a new position, a certain percentage of the balance of your account will be withheld as the initial margin for the opening of the new position. The price of the currency pair, your trading volume, and your margin dictate the margin level you need to reserve for each trade. The amount of the margin is usually indicated in the base currency.
Maintenance margin is the minimum margin amount required to maintain the account when you hold the position. The margin ratio is equal to the available margin divided by the account equity, and the available margin is the equity minus the margin (used margin) required to establish an existing position.
Initial margin = contract value of open position at opening price * initial margin ratio (%)
Suppose you open a 200:1 leverage or 0.5% margin account.
If you open a mini-lot position with you margin, you don't have to use the full $10,000; you only need to provide an initial margin of $50 ($10,000 × 0.5%=$50).
Maintenance margin ratio (%) = initial margin ratio (%) * 50%
When you hold the position of a product overnight, your A/C may be charged / deposited into the product's corresponding overnight interest.
That is because when you trade a currency pair, the two currencies involved have overnight funding. For the currency you buy, you may receive interest, and for the currency you sell, you need to pay interest. The difference of interest on the currency pair will determine whether you will be charged or receive overnight interest corresponding to the product.
Formula for calculating the daily overnight funding of the daily position
= trading lot * contract size * opening price * daily overnight funding rate (%)
Any client may be charged/deposited overnight funding corresponding to the product for holding a currency pair position through the settlement time at Mitrade each day. The settlement time is GMT 22:00 (Winter time). Generally, overnight funding applies if you hold a position until this time. Please note that the time zone varies depending on your settings.
Balance = Deposit - Withdrawal + Realised Total P/L of closed positions, excluding P/L of current open positions.
Equity = balance + unrealised total P/L of open positions + overnight funding of all open positions
Equity is the value of the cash account after closing of all positions, that is, the disposable funds that reflect conversion of your trading account positions at market price.
Balance does not include the floating profits and losses in the position, while equity involves the floating profits and losses of open positions.
In the case of no open position, equity equals balance.
Profits and losses of profit/loss of all positions (excluding overnight funding).
Long: (current sell price - opening price) * trading lot * contract size
Short: (opening price - current buy price) * trading lot * contract size
Profits and losses of all positions (profit/loss + overnight funding)
Long: (current sell price - opening price) * trading lot * contract size + overnight funding
Short: (opening price - current buy price) * trading lot * contract size + overnight funding
The floating P/L of the remaining amount of the account after deducting the initial margin (the account balance that can be used for opening new positions or withdrawal)
Available balance = balance + unrealised total P/L of open positions + overnight funding for all open positions - total initial margin
An “order” refers to a setting for opening a new position at a specified price on the platform. You can preset the order opening level, but you cannot set to close the position outside the trading time for the financial instrument.
The current buy price of gold is $1300.05 per lot. You place an order to buy at $1298.00.
In a price fluctuation, the buy price drops from $1300.05 to $1296.40.
According to your order, the above position will be opened at $1296.40, because this price is the first best tradable price after your specified price is skipped.
Usually there are four types of pending orders: buy stop, sell stop, buy limit, and sell limit, all of which are available at Mitrade. Stop orders (including buy & sell orders), in addition to the function of stopping losses in existing positions, can be used as a buy stop / sell stop strategy. Limit orders (including buy & sell orders) are usually used to buy at a price lower than the market price (buy limit) or sell at a price higher than the market price (sell limit).
A stop-loss order allows you to set an automatic closing price in advance to avoid price fluctuations which may cause excessive losses to your position and to limit your losses. When the value of your position reaches or skips (the price may fluctuate higher or lower when fluctuations are excessive) this price, the stop-loss order will be triggered and your position will be automatically closed.
This function does not guarantee that a position is actually closed at the price, due to market fluctuations that sometimes lead to “slippage”. When the market price reaches or skips your pre-set stop-loss level, your position will be closed at the next best price.
The US30 CFD's bid/ask price is $22,916.66/$22,919.86.
You buy 10 US30 CFDs and place the stop-loss level at an sell price of $22,896.50.
If the US30's price suddenly drops from $22,916.66 to $22,886.40, your position will be closed at $22,886.40 instead of your original stop-loss price of $22,896.50.
It is because the placement of a stop-loss order does not guarantee that your position will be closed at that price. When the stock price suddenly falls below $22,896.50, the stop-loss order is triggered and the position is automatically closed at the next best closing price, which is $22,886.40 in this example.
The trailing stop order is one of the stop-loss orders designed to protect gains by enabling a trade to remain open and continue to profit as long as the price is moving in the investor’s favor, but closes the trade if the price changes direction by a specified pip amount.
Example: Suppose you buy EUR/USD at 1.14106, and set a 500-pip trailing stop order. If the price rises to 1.14606, your stop-loss will increase from the initial level of 1.13606 to 1.14106 (by 500 pips). Then your stop loss level will remain at 1.14106 unless the price moves in the direction you are holding.
You can use a trailing stop order to lock the stop-loss amount and reduce the risk to your acceptable range without limiting your profitable potential.
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