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Stupid maths

  • #1
  • First Post: Dec 12, 2006 6:26am Dec 12, 2006 6:26am
Hi,

Being a newbie I am having some trouble witht the maths of leverage etc.

In a book I purchased it gives an example:

1 lot (100,000) EUR base currency
50:1 leverage, or 2%
quote currency USD
Profit 300 pips

So,
USD10.00 x 50:1 x 300 pips =USD 60,000

When I do this on my calculator it only gives me 60, not 60,000

Where am I going wrong with my calculation?

Thanks in anticipation
Zygons
  • #2
  • Dec 12, 2006 6:49am Dec 12, 2006 6:49am
why USD 10.00?
  • #3
  • Dec 12, 2006 6:53am Dec 12, 2006 6:53am
Maybe your calculator reads 100,000 as 100.000?
  • #4
  • Dec 12, 2006 6:54am Dec 12, 2006 6:54am
Quoting cesarnc
why USD 10.00?
Let's say you have $1,000 to go to the market.

With 50:1 leverage = $50.000, right?

With $50K, every pip you gain/loss represent $5 (five bucks) (50,000 / 10,000)

So, if you make 300 pips profit, you'll have made 5x300 = 1,500 profit.

And you'll end the day with your initial $1,000 + your profit $1,500 = total $ 2,500. Looks like a very nice day to me
  • #5
  • Dec 12, 2006 7:06am Dec 12, 2006 7:06am
Quoting cesarnc
why USD 10.00?
The book says: Each pip in a lot of the EUR/USD pair is worth USD 10.00.
  • #6
  • Dec 12, 2006 7:16am Dec 12, 2006 7:16am
Quoting JosTheelen
Maybe your calculator reads 100,000 as 100.000?
no it just says 60

It doesn't say 60,000
The example in the book says 60,000
How do they get that? There is a big difference between USD 60 and USD 60,000
  • #7
  • Dec 12, 2006 7:20am Dec 12, 2006 7:20am
Quoting Zygons
The book says: Each pip in a lot of the EUR/USD pair is worth USD 10.00.
No!

Each pip for a $100,000 lot of the EUR/USD pair is worth $10.00

If you trade minis (10K lots) then it is worth $1.00

See? One pip will always represent 1/10.000 of the volume you trade = or 0.0001. Got that??
  • #8
  • Dec 12, 2006 7:21am Dec 12, 2006 7:21am
Lets give the whole example to make it easier:


EUR/USD trade
BUy at 1.2500
Sell at 1.2800
=300 pips
One lot (100,000) euros - base currency
2% margin (50:1 leverage)
each pip in a lot of the EUR/USD pair is worth USD 10.00

So,
USD 10.00 x 50:1 leverage x 300 pips = USD 60,000
  • #9
  • Dec 12, 2006 7:28am Dec 12, 2006 7:28am
No Zygons,

Leverage is a tool to help you enter the market. For instance, if you have $1,000 you can place a position with 50 times that. That is $50,000

Then your pips will be related to the amount of money you put = $50,000

There's no reason why multiplying pips per leverage....
  • #10
  • Dec 12, 2006 7:36am Dec 12, 2006 7:36am
Quoting cesarnc
No!

Each pip for a $100,000 lot of the EUR/USD pair is worth $10.00

If you trade minis (10K lots) then it is worth $1.00

See? One pip will always represent 1/10.000 of the volume you trade = or 0.0001. Got that??
Ok so 300 pips x 10.00 = 3,000.

2% x 3,000 = $60
$60 x 1/10.000 = $60,000

Is this it?
  • #11
  • Dec 12, 2006 7:44am Dec 12, 2006 7:44am
Quoting Zygons
Ok so 300 pips x 10.00 = 3,000.

2% x 3,000 = $60
$60 x 1/10.000 = $60,000

Is this it?
I'm sorry, Zygons. I'm not getting it.
  • #12
  • Dec 12, 2006 7:48am Dec 12, 2006 7:48am
Quoting cesarnc
No Zygons,

Leverage is a tool to help you enter the market. For instance, if you have $1,000 you can place a position with 50 times that. That is $50,000

Then your pips will be related to the amount of money you put = $50,000

There's no reason why multiplying pips per leverage....
Cesarnc,

That makes a lot sense.
The trouble with the example is I can't get a feel for how much is being traded. Given the information provided it isn't like a simple stock trade where you can guage your trade value.
  • #13
  • Dec 12, 2006 7:51am Dec 12, 2006 7:51am
Quoting cesarnc
I'm sorry, Zygons. I'm not getting it.
Thanks.
I am glad becuase I have tried hard to understand the book example and as posted others can't get it either. The book is trash and I shall learn from this forum.

Thanks for your help.
  • #14
  • Dec 12, 2006 7:57am Dec 12, 2006 7:57am
The leverage for the account is different from the pip and profit.

Standard account is $100,000.00 USD = 1 Lot = $10.00 per pip
Mini Acount is $10,000.00 USD = 1 Lot = $1.00 per pip

You open a standard account with say $10,000 at 100:1 leverage. You may place an order for 1 lot. If you are luckier than me you get 300 pips profit, then you get $3000 USD profit.

You open a mini account with say $1,000 at 200:1 leverage. You may place an order for 1 lot. If you are luckier than me you get 300 pips profit, then you get $300 USD profit.

Your leverage would be different for each account but the profit per pip is the same and depends on the account type.

Hope I explained it right and it helps.
Labrat407
  • #15
  • Dec 12, 2006 7:58am Dec 12, 2006 7:58am
Quoting cesarnc
With $50K, every pip you gain/loss represent $5 (five bucks) (50,000 / 10,000)
Sorry for the confusion, but where do the 10,000 come from?
  • #16
  • Dec 12, 2006 8:04am Dec 12, 2006 8:04am
To figure out the value per pip, doesn't it make sense to calculate like this:

50,000 (50:1) / 12830 (EUR/USD) = value x per pip

Right or wrong?
  • #17
  • Dec 12, 2006 8:05am Dec 12, 2006 8:05am
Quoting Zygons
no it just says 60

It doesn't say 60,000
The example in the book says 60,000
How do they get that? There is a big difference between USD 60 and USD 60,000
I just found that there are 10,000 pips in $1 us .

60 x 10,000 = $60,000

The example failed to provide the pip factor which is 10,000.
  • #18
  • Dec 12, 2006 8:08am Dec 12, 2006 8:08am
Quoting Labrat407
The leverage for the account is different from the pip and profit.

Standard account is $100,000.00 USD = 1 Lot = $10.00 per pip
Mini Acount is $10,000.00 USD = 1 Lot = $1.00 per pip

You open a standard account with say $10,000 at 100:1 leverage. You may place an order for 1 lot. If you are luckier than me you get 300 pips profit, then you get $3000 USD profit.

You open a mini account with say $1,000 at 200:1 leverage. You may place an order for 1 lot. If you are luckier than me you get 300 pips profit, then you get $300 USD profit.

Your leverage would be different for each account but the profit per pip is the same and depends on the account type.

Hope I explained it right and it helps.
Labrat407
Thank you Labrat407!
Very clear in deed.
  • #19
  • Dec 12, 2006 8:18am Dec 12, 2006 8:18am
There are several Sticky posts at the top of the Beginners section. I have read them several times and still read them again and again. Leverage is simple when you finally get it. The hard part is to get the Money Management (MM) down pat.

You will find your own trading style to fit you. Test them all, it is free.

There are also some book reviews here on the site. Well worth the read. Take your time and read, It will help later.

Labrat407
  • #20
  • Last Post: Dec 12, 2006 8:22am Dec 12, 2006 8:22am
In my first post:
You open a standard account with say $10,000 at 100:1 leverage. You may place an order for 1 lot. If you are luckier than me you get 300 pips profit, then you get $3000 USD profit.

You open a mini account with say $1,000 at 200:1 leverage. You may place an order for 1 lot. If you are luckier than me you get 300 pips profit, then you get $300 USD profit.

You may place orders of other sizes, at $1,000 at 200:1 leverage You could place more or less (if your broker allows) than 1 lot. It is the risk factor that comes in to play. You may want to stick to 1% or even try 10%. This is where MM comes in to play. Same with $10,000 at 100:1 leverage.

labrat407
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