Understanding these three terms is essential for navigating the forex market on Exness:
1. Pip Value:
- Definition: Pip (percentage in point) is the smallest price movement in a currency pair. For most major pairs on Exness, one pip is equal to 0.0001 (one-tenth of a cent) in the quote currency.
- Importance: Pip value helps you calculate potential profits or losses on your trades.
- Example: Imagine you buy 1 lot (standard trading unit) of EUR/USD at a price of 1.1234. If the price increases by 1 pip to 1.1235, your profit would be the pip value multiplied by the number of lots traded (0.0001 * 1 lot = $1).
2. Leverage:
- Definition: Leverage is a tool that allows you to control a larger position in the market with a smaller amount of your own capital. It essentially acts like a loan from the broker.
- Example: If the leverage is 1:100, you can control a position worth $100,000 by depositing only $1,000 (margin).
- Benefits: Leverage can magnify potential profits. However, it also amplifies potential losses.
- Risks: Using high leverage can lead to significant losses if the market moves against your position. It’s crucial to use leverage cautiously and manage risk effectively with stop-loss orders.
- Exness Leverage: Exness offers varying leverage options depending on the account type and instrument traded. Always check the specific leverage available for your chosen instrument.
3. Margin:
- Definition: Margin is the deposit you need to maintain open positions in your trading account. It’s a percentage of the total trade value you control using leverage.
- Calculation: Margin = (Trade size * Opening price) / Leverage
- Example: If you buy 1 lot of EUR/USD (approximately $100,000) with 1:100 leverage, the margin required would be $100,000 / 100 = $1,000.
- Importance: Margin serves as a buffer to ensure you have sufficient funds to maintain your open positions. If your account equity falls below the required margin level (due to losses), Exness might initiate a margin call, forcing you to close positions or deposit additional funds.
Here are some additional points to remember:
- Exness provides a Margin Calculator on their website to help you estimate margin requirements for your trades. [link exness investment calculator ON exness.com]
- Always understand the risks involved before using leverage. Start with lower leverage and gradually increase it as you gain experience.
- Effective risk management practices like stop-loss orders are crucial when using leverage.
By understanding pip value, leverage, and margin, you’ll be better equipped to make informed trading decisions and manage your risk effectively on Exness