Pips, micro, mini, lot … but what are we talking about?
Professional traders often use words or phrases that the novice investor does not always understand. We will try to clarify the jargon used in Forex.
One pip is considered as 1 quotation point to calculate gains and losses on positions. We can see on the two images below, (the blue representing the EURJPY pair and the red representing the EURUSD pair) that the pips are often, written bigger on most platforms. To retain these points, you must look at the fifth digit without taking into account the comma.
Micro lot, mini lot and lot
The lot is a standard currency unit for quantifying the amount of trading in the Forex market.
- The lot represents 100 000 units
- The mini-lot represents 10,000 units
- And the micro lot represents 1,000 units
If we trade the EURUSD currency
- The pip for a LOT up or down varies your balance by 10 USD
- The pip for a MINI LOT up or down varies your balance by 1 USD
- The pip for a MICRO LOT up or down varies your balance by 0.10 USD
Long position or “Buy”
If you take a long position on a currency pair, it means that you are a buyer and that you hope to sell after a price higher than the purchase price in order to realize a capital gain.
Short position or “short”
If you take a short position on a currency pair, it means that you are a seller and that you hope to buy back after a price below the price in order to realize a capital gain.
The stop loss, also called the protection stop, is the price level at which the trader will estimate or set his position in the event of loss and is an essential element of money management.
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