To buy a Forex contract, the trader must not pay the face value. In most cases, the broker only requires coverage of 1% of contract value. In this case we speak of a lever (or leverage) of 100:1. Some brokers double this margin during the weekend. Forex prices are quoted in two or four decimal places (e.g. EUR-USD 1.3105). The decimals are called in Forex jargon “pips,” the lowest possible price changes.
For a standard contract of the pip is worth $ 10, billed at $ 1 a mini contract (the contracts in the underlying currency).
Example:
- A Standard EUR-USD contract is worth € 100,000. The margin to hold a position is therefore € 1,000. The value of a pip is $ 10.
- A mini contract is worth € 10,000. The margin for opening a position is € 100. The value of the pip is $ 1.
- We open a position at 1.3105 and 1.3150 for sale. We made a profit of 45 pips, so $ 450 for a standard contract and $ 45 for a mini-treaty.
Your broker will automatically close your open position if the margin is not covered. The underlying rules vary from broker to broker. WH Self Invest closes open positions if the value of the account falls below 25% of the fixed margin.
Example:
- An account with a credit of € 1,000 can just buy a standard contract or sale. The account must not fall below € 250. With a loss of € 750, the position is closed.
