Calculating lots, pips and margin

These three calculations set the real risk of every trade. Do them by hand once to understand them,
then use a tool for speed — but do not skip them.

1. Pip value

Pairs quoted against the dollar (EUR/USD, GBP/USD, AUD/USD)

Fixed: $10 per pip on one standard lot, $1 on 0.1 lots, $0.10 on 0.01.

JPY pairs

One pip is 0.01. Pip value = 1,000 ÷ the current rate. Around 150, about $6.70 per
lot.

Pairs with the dollar first (USD/CAD, USD/CHF)

Pip value = 10 ÷ the rate, in dollars.

Gold

One lot is 100 ounces. Every $0.01 of
gold price is $1. Every $1 of gold
is $100.

2. Position size from risk

Lots = Amount risked ÷ (Stop distance × Value per price unit)

EUR/USD example: a $5,000 account, 1% risk = $50, a 25-pip stop.

50 ÷ (25 × 10) = 0.2 lots

Gold example: the same account, an $8 stop in gold price.

50 ÷ (8 × 100) = 0.06 lots

The two answers differ by more than threefold for identical risk. Which is why one size cannot serve
every instrument.

3. Margin

Margin = (Contract size × Lots × Price) ÷
Leverage

One lot of EUR/USD at 1.0850 with 1:100 leverage:

(100,000 × 1 × 1.0850) ÷ 100 = $1,085

The thing to understand: leverage changes only the capital locked, not the risk. On
that same lot, profit and loss is $10 a pip whether the leverage is 1:30 or 1:500. Risk comes from
position size, not from leverage.

4. Margin level

Margin level = Equity ÷ Used margin ×
100%

This decides whether the account survives. Know your broker’s
margin call and stop-out levels, and keep a safe
distance from them.

5. Which tool to use

Most brokers have a calculator on their site: enter three or four values and read the answer. Many
platforms include one too.

But there is a reason to build your own spreadsheet: you control the assumptions, and you can add
columns for cost and rebate to see the net figure — which the broker’s calculator will not work out
for you.

6. The habit to build

Work out the size before opening the
order window, not while watching price move. Those ten seconds are the most valuable in the whole
entry process.

This article is for information only and is not investment advice. Conditions and fee levels are published by the brokers and can change at any time — check with the broker you actually use. Leveraged forex and CFD trading carries a high level of risk and can cost you your entire deposit.