BEST Forex Brokers for Beginners

Let’s look at an example:

Say that you plan to trade one mini lot (10,000 units) of the euro currency, and your forex broker offers a maximum of 20:1 leverage. Your trading funds will need to cover at least 5% of the trade value just for the margin, and another €1 for every pip you plan on risking when the market moves against your position. Note: In this case, 1 pip is 0.0001 euros worth of currency.

That mini lot of 10,000 EUR/USD would require at least 500 euros in margin (based on the 20:1 leverage). If you wanted to risk no more than 200 pips per trade you’d need another 200 euros, bringing the required starting balance up to 700 euros.

Let’s look at a couple of other examples of how this could break down in your forex trading account:

Trading a standard lot: Calculating for the above trading scenario, but for a standard lot (100,000 units of currency), you’d just add an extra zero to each variable. The 20:1 margin requirement would be 5,000 euros and the pip value would be 10 euros per pip. Risking 200 pips would require 2,000 euros in risk capital, bringing the total to 7,000 euros.

Trading a micro lot: Likewise, calculating the same scenario for a micro contract or (1,000 units of currency per lot), we can just remove one zero from each variable. The pip value becomes 10 cents, the margin requirement would be 50 euros, and the risk capital (for 200 pips) would require 20 euros.