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Accurate risk management can mean the difference between success and failure as a Forex trader in the foreign exchange market.
Fortunately, Forex calculators are in place to help streamline the trading process, allowing traders to effortlessly make trading calculations using real-time Forex market prices.
In addition to offering a wide array of trading tools and technical indicators, FP Markets provide essential trading calculators, including a pip value calculator and an all-important margin calculator, each of which are structured in an easy-to-use design.
Forex Trading Calculators
Regardless of whether you’re a day trader (day trading [intraday]) or an investor, or whether you operate a trading strategy that derives trading decisions from fundamental or technical analysis, understanding pip value is crucial when trading Forex.
A pip, or price interest point, measures the currency pair’s fluctuation, usually priced to four decimal places (0.0001). Currency pairs containing Japanese yen (JPY), however, are priced to two decimal places (0.01).
The currency market operates through currency pairs. EUR/USD (Euro/US dollar), for example, is a popular currency pair, representing two of the most widely traded currencies in FX trading. The EUR, in the case of EUR/USD, acts as a base currency, which is always set at a rate of 1 unit. The quote, or counter currency, determines the base currency’s value. EUR/USD quoted at $1.3000 means 1 euro is valued at 1.30 USD at current market pricing.
Calculating pip value is straightforward with FP Market’s user-friendly pip calculator (see figure 1.A). By selecting your account currency in the drop-down menu (this is the currency your account is denominated in), trade size ([position size] in units) and the currency pair traded, the calculator instantly calculates the pip value at the bottom right-hand corner of the box in your account currency.
(Figure 1.A: Forex calculator provided by FP Markets)
Manually calculating pip values is an option for those who prefer to do things the old-fashioned way.
If the quote currency is the same as the account currency (USD), pip values are as follows:
- A micro lot (1,000 units) represents 0.10 USD each pip movement.
- A mini lot (10,000 units) equals 1.00 USD per pip.
- A standard lot (100,000 units) represents 10.00 USD per pip.
If the account currency is the same as the base currency in the currency pair, the pip value is found by dividing one pip (0.0001) by the value of the currency pair and then multiplying this value by the lot size (units).
If the account currency is not included in the currency pair, a different approach is required. A trader with an account denominated in AUD that wishes to trade CAD/CHF must locate the rate for AUD/CHF. The trader can then perform the same calculation as demonstrated above using the AUD/CHF rate (the account currency now represents the base currency).
Margin is an important concept to understand.
In simple terms, margin is the deposit required by your CFD Forex broker in order to initiate trades and employ leverage.
To use the margin calculator provided by FP Markets, simply input your account currency, the currency pair traded, your account leverage and trade size. The calculator then displays the required margin to trade that specific position in your account currency (see figure 1.B).
(Figure 1.B: Forex calculator provided by FP Markets)
Identical account currency and base currency.
- Margin is found by dividing the account’s leverage ratio. For example, account leverage at 1:100 equates to 0.01 or 1.00% margin of the notional value. Therefore, a standard lot trade (100,000 units) equates to 1,000 USD margin.
Identical account currency and quote currency.
- This is found by multiplying the notional position value by the current price of the currency pair, with this value then multiplied by the margin percentage.
An account currency different to the currency pair traded.
- This involves a different approach, effectively adding the account currency to the currency pair’s quote currency. An account based in GBP trading EUR/USD requires the trader to multiply the position value by the current EUR/GBP rate and then multiply this value by the margin percentage.
Swap often confuses traders. Swap is the interest paid at the time of rollover – the end of the trading day. Holding open positions after 5pm (New York EST) incurs interest, either in the shape of a debit or credit, subject to a country’s overnight interest rate.
Using the swaps calculator provided by FP Markets helps sidestep manual calculation. By entering account currency, the currency pair and trade size, the calculator reports swap rates at the bottom of the box for both long and short positions (see figure 1.C). This is what you can expect to have debited or credited in your trading account at the end of the trading day.
(Figure 1.C: Forex calculator provided by FP Markets)
Both MetaTrader 4 (MT4) and MetaTrader 5 (MT5) trading platforms deal in points. Swap rates are found through the Market Watch (Ctrl+M) function in the Specification tab.
In a nutshell, manually calculating the swap rate involves dividing swap points by the currency pair’s price. Additional reading on swap and rollover can be found here.
The profit/loss calculator does the job of calculating profit and loss in a trade.
To calculate profit/loss, specific trade details such as trade size, open and closing prices, swap long and short values, and the period of time the trade was active are required (the timeframe), as demonstrated in figure 1.D. Depending on price movement (price action), the calculator informs you of the profit (or loss) incurred on any one position.
(Figure 1.D: Forex calculator provided by FP Markets)
Disclaimer: The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.