There are a lot of calculations involved in forex trading, and understanding how the calculations work can help traders gain an overall understanding of how to control risk. Many beginners pay too much attention to technical analysis and ignore the calculation of margins and profit and loss. They just rely on the calculation results generated by the MT4 forex trading platform, which is not a good trading habit.

For example, if we need to trade the EURUSD currency pair and there is 1000 US dollars in the trading account, and the preset stop loss is 10 points. How many lots can we exchange?

If you are not familiar with calculating the margin, you can’t know what’s on your mind, and of course, you can’t control the risks well.

The wind swept across the desert without warning, and there were many moving thoughts. The star was suspended in the distant sky, glowing with its faint starlight, not as bright as the sun but as intoxicating as a flower.

## 1. The first-hand transaction order in the forex market represents the base currency 10W

There are two currencies for each currency pair. The base currency is ranked first and the denomination currency is ranked behind. For example, of USDJPY, USD is the base currency and JPY is the denomination currency.

If USD is in the foreground, it is an inverted currency (full text is represented by USDJPY); if USD is at the back, it is a forward currency (full text is represented by EURUSD).

The forex market stipulates that the total value of a trade order is 100,000 base currencies, with the base currency being the currency in front of the currency pair. Many newbie traders have a habit of saying that a trade order is US $ 100,000, which is a very obvious mistake.

For USDJPY, USDDCAD and USDCHF, it is indeed 100,000 US dollars; but for EURUSD, GBPUSD and AUDUSD, the transaction orders of a lot are respectively 100,000 euros, 100,000 pounds sterling and 100,000 Australian dollars.

As we all know, the forex can place not only standard lot orders, but also 0.1 (mini lot) and 0.01 (micro lot) lot orders. This is a function that other markets do not have.

When the order volume is 0.1 lot, the total contract value is 10,000 base currency. Note that this is the base currency, not the US dollar. When the order volume is 0.01 lots, the total contract value is 1,000 base currencies. Orders with other values can be obtained by simple multiplication and division operations.

### 2. There are two modes of floating and fixed margin

The floating margin model is the most common, and it is also the most scientific method of calculation. Take the example of 200 times leverage. When trading USDJPY, if the order size is 1 standard lot, divide the base currency of 100,000 (here, USD) by 200 (here, leverage) to get the total amount of the margin occupied in base currency of 500 (here, USD).

With the same leverage of 200 times, if the trading product is EURUSD and the order volume is 1 standard lot, divide the base currency of 100,000 (here: Euro) by 200 (here, leverage ) to obtain the total amount of the occupation margin as base currency 500 (here in euros).

The calculation is not yet complete. You should know that the funds in our MT4 account are in US dollars, so we need to convert 500 euros to US dollars.

Assuming the current EURUSD exchange rate is 1.2, the calculation method is to multiply the total Euro margin of 500 by the current exchange rate of 1.2 to get the USD margin of 600 In addition to the floating margin, there is also a fixed margin model.

As the name suggests, the fixed margin amount remains unchanged for a while. This is done to simplify the process of calculating the margin and to get new to trading started quickly. For example, the margin for a lot of EURUSD is set at $ 500. Fixed margin does not involve complicated calculations and traders can compare the list of fixed margins on their own.

### 3. The basis for calculating trading profit and loss is to understand the point value

The point value is the value of a standard point per currency fluctuation. The currency market generally does not use percentages to calculate profit and loss. Another method is to calculate the total number of points in the market fluctuations. For example, if the exchange rate of the EURUSD currency pair goes from 1.2000 to 1.2001 (or drops to 1.999), it fluctuates by one standard point.

### So how do you calculate the value of a standard point?

This involves the concept of 100,000 base currencies mentioned earlier. The base currency of EURUSD is the euro. The base currency of 100,000 is 100,000 euros and the exchange rate is converted to 120,000 US dollars (using an exchange rate of 1.2 as an example).

When the exchange rate reaches 1.2001, the total contract value is US $ 120,010. Subtract $ 120,010 to $ 120,000 to get a difference of $ 10 (that’s also $ 10 depending on the drop to 1.1999).

Therefore, the EURUSD pip value is $ 10. For USDJPY, the base currency of 100,000 is 100,000 US dollars. Assuming the current exchange rate is 104.00, then the US $ 100,000 is converted to Japanese yen 10.4 million. If the exchange rate changes from 104.00 to 104.01, the total contract value is 10,401,000.

Subtract the 10,401,000 after the change from the 10,400,000 before the change, and you can get 1,000 yen (1,000 yen). Then convert 1000 yen to US dollars, i.e. divide 1000 by 104.1 and get a USDJPY point value of 9.606 US dollars.

### 4. Calculation of the amount of profit and loss

Calculating the profit and loss amount of a positive currency pair is very simple. You just need to calculate the difference between the buy price and the sell price. After converting the profit and loss points, multiply it by 10 to get the profit and loss amount in US dollars.

For inverted currency pairs, the point value is often in a floating state, and it is more difficult to calculate the amount of profit and loss. Here is a benchmark for the point value of the inverted currency pair under the real-time exchange rate of November 24, 2020, and traders who need it can bookmark it:

Currency pair | Spot exchange rate | Point value |

USDJPY | 04.3 | 9.59 |

USDCHF | 0.9102 | 10.99 |

USDCAD | 1.3026 | 7.68 |

USDTRY | 7.8777 | 1.27 |

USDCNY | 6.5762 | 1.52 |

USDRUB | 75.7109 | 0.13 |

The calculation of the forex market is not only the simple content of margin, point value, profit and loss, but also complex concepts such as account equity, balance, risk rate, etc.

While these values can be calculated automatically through forex MT4, for rigorous traders, being able to calculate them independently will greatly improve their understanding of transactions. You should know that high-end risk control skills leave no complex formulas and stable computer trading skills are a must, and you should not give up learning because of a moment of laziness.