Before moving to the "Sample Transaction" in the next section, it is important to understand and get used to making calculations so you know what you're making or losing.

The areas you need to know are:

Understanding "Pips" & "Lots"
How much money do you need per transaction
Once you're in, how much money is your win/loss per "Pip" (point) movement?
What's the breakeven once you open a position?

The first thing you need to understand is what a "Pip" means since this is what you will use in calculating your profits and losses on the trading platform. In short, when you open the trading platform and see all the different currency boxes listed. The best way to think of a "Pip" is the movement of a "Point" in the currency box for a given currency.

For example, if you looked at the FXCM trading platform and saw USD/JPY for dollar/yen where the "Buy" box showed the Yen as 110.50 and in the next 2 minutes, it increased to 110.51, the change would be 1 "Pip".

Another example is if you saw USD/CHF at in the sell box at 1.24 for the dollar/franc and in the next 2 minutes, it decreased to 1.22, it decreased 2"Pips".

2. Understanding "Lots"

When you actually do trades, it's important to understand when you look at the FXCM trading platform that you are given the option to deal with a MINI ACCOUNT or REGULAR ACCOUNT.

MINI vs. REGULAR Account

If you decide to do a "MINI ACCOUNT" on a demo or real account, every "lot" is defined as 10K, 20K, 30K, ....etc. So, when you click on the dealing box to do a market or entry order, the drop down menu will read 10K, 20K, etc. which actually translates into lots. The same is true with a "REGULAR ACCOUNT" where you're dealing with 100K being 1 lot versus 10K for the "MINI" ACCOUNT. Below is a simple table.

3. How much money do you need to "Open" a transaction

If you are trading a "MINI" ACCOUNT, whenever you "Open" a trade for each 10K transaction, you need at least $50 in your account to "Open" the transaction for each 10K that you "Buy" or "Sell". So, if you opened 20K, you would need $100 ($50 x 2) in your account to open a position and so forth. (0.5% margin - ask our "Live Support" for clarification).

On a "REGULAR" ACCOUNT", opening a trade for each 100K transaction would require that you have at least $100 in your account to "Open" the transaction on the platform. So, 4 "Open" positions of 100K (or a 400K transaction) would require a minimum balance of $400 in your account.

If you had a "MINI" account, and moved your mouse to "Buy" AUD/USD, you would be prompted to purchase anywhere from 10K (1 lot) to 100K (10 lots). With a "REGULAR" account, move your mouse to "Buy" AUD/USD, you would be purchase from 100K (1 lot) to 1000K (10 lots).

4. Once you've opened a transaction

Suppose you opened a $300 "MINI ACCOUNT". In theory, with $300, you cannot open more than 6 open currency transactions of 1 lot (10K) since you need at least $50 in your account per "Open" transaction of 1 lot. For example, if you purchased 2 lots (20K) in a transaction, you could only open 4 more 1 lot (10K) positions.

This is what's called "margin requirement". In the MINI accounts, "margin requirement" is required at 0.5% per 1 lot which means 10K or 10,000 currency units x 0.5% = $50 needs to be in your account per 1 lot transaction. Feel free to chat with our "Live Help" to clarify your understanding.

If your equity's minimum amount required per lot falls below what you need to keep your current positions "Open", you will get a "Margin Call" where FXCM will automatically close all your "Open Positions". This is to prevent you from going negative in your account.

5. What each "Pip" movement up or down is worth

Once you've entered into a transaction, say "Buy" 1 lot of EUR/USD (10K), take a look at the "Simple View" on the trading platform. To see this, move your mouse pointer over the dealer boxes, right click and choose "Look & Feel", then "Simple View" where you will end up with a listing that looks like the following below which is for a MINI account.

Notice that the PipCost for EUR/USD is $1.00 which means for each "Pip" movement up or down on the chart, you will make or lose $1.00 if you purchased 1 lot (10K). If you purchased 2 lots (20K), each "Pip" movement would be worth $2 to you up or down. The formula is:

(Number of Lots) x (Value per Lot or PipCost) = Dollar value of 1 Pip Move

Example: Purchasing AUD/USD at 5 lots on MINI Account

Once you know the "Dollar value of 1 Pip move" from the above formula you can easily calculate how much you gain / lose from the time you open your position. For example, if you "Buy" AUD/USD at 0.7180 and it moved up to where the "Sell" price read 0.7226 for a gain of 46 Pips and you calculated the Dollar value per 1 pip move at $5 from buying 5 lots, multiply $5 x 46 = $230.

For example, you have a "MINI" ACCOUNT that you opened with $300 USD at Hawaii Forex and you felt the AUD/USD was going to move up. Suppose you did a "Market Order" getting in where you felt it would rise from 0.7180 "Buy" up to 0.7226 "Sell" for a move of 46 "Pips" (0.7226 - 0.7180) and purchased 5 lots (50K). If this happened, you would make: (5 lots) x ($1 per lot) = $5 per pip move. Multiply this time 46 Pips moved up = $230 gained.

6. Understanding Day P/L and Gross Day P/L

Know when you're looking at the trading station that Day P/L is listed as Pips gained or loss from when you "Opened" the position while the Gross Day P/L translates this into dollars for you. Also note when you look at the "PipCost" as in the above screenshot, that it is rounded to 2 decimal places. If you want to know the true "PipCost", divide (Gross Day P/L) by (Day P/L) which will give you 4 decimal places.

7. Breaking Even

Once you've opened a transaction, say "Buy" 1 lot (10K) of EUR/USD, when you look at your "Open Position" on the trading platform, you'll notice on the trading platform that you're automatically down 5 Pips which is known as the "Spread". If you look at the above chart on the EUR/USD, you'll notice a 5 Pip difference between the "Buy" and "Sell" price (spread).

So once you've entered a position on a 1 lot (10K) "Buy", the price of the EUR/USD will need to increase 5 Pips for you to break even.

8. Demo and Real Account

Even though this is "play" money, it is still recommended that you try to practise with the account type that best works with your style of trade. The amounts here are to give you some practise only.

For practise on a MINI, the demo puts $5,000 virtual money in your "Mini" account to learn.

For practise on a REGULAR, the demo puts $50,000 virtual money in your "Regular" to learn.

When you are ready to trade a "Real" Account, the requirement to open a "Mini" Account is $300 or a "Regular" Account at $2,000.