You can learn everything about trading. This is the third chapter of the Beginner Course, we are going to

talk about Basic Terminologies.

In this chapter, you will learn about :

- Understanding a Lot, Pip and Pipette, Rollover and Swap
- How to calculate the value of a Pip
- How to calculate a Swap

## Understanding a Lot

A lot is the standardized number of units of

an asset being traded.

Forex is commonly traded in specific

amounts called lots, or basically the

number of currency units you will buy or

sell. It’s like an Egg Carton. When you buy

an egg carton, you will buy a carton which

includes 10 eggs.

Normally, Lot can be classified into

Standard Lot, Mini Lot, Micro lot and Nano

lot.

**1 standard lot**is equal to**100.000 units**of the base currency in a forex trade.**1 mini lot**is equal to**10.000 units**of thebase currency in a forex trade andcommonly used by beginners that are new to the market and learning how to trade.**1 micro lot**is equal to**1000 units**of the base currency in a forex trade.**1 nano lot**is equal to**100 units**of the base currency in a forex trade.

## Understanding a PIP

A Pip, short for “percentage in point” or

“price interest point”. A pip is the most basic

unit of measure in Forex Trading and the

smallest price move that an exchange rate

can make based on forex market

convention.

A pip is usually the last decimal place of a

price quote. Most pairs go out to 4 decimal

places, but there are some exceptions like

Japanese yen pairs (they go out to two

decimal places). **For Example: If EUR/USDmoves from 1.1050 to 1.1051, that .0001USD rise in value is ONE PIP.**

The change in a currency value relative to

another is measured in “pips” which is a

very, very small percentage of a unit of

currency’s value.

**Trading Standard Lot**: 1pip movement

for a $10 change.

For example, if you buy $100,000 against

the Japanese yen at a rate of ¥110.00 and

the exchange rate moves to ¥110.50, which

is a 50 pip movement, you have made

$500.

*Conversely, if the exchange rate falls 50pips to ¥109.50 your net profit and loss areminus $500.*

**Trading Mini Lot**: 1pip of a currency pair

based in U.S. dollars is equal to $1.00,

compared to $10.00 when trading a

standard lot.

**Trading Micro Lo**t: 1pip of a currency

pair based in U.S. dollars is equal to just

$0.10.

**Trading Nano Lot**: 1pip of a currency

pair based in U.S. dollars is equal to just

$0.01.

## Understanding a Pipette

There are forex brokers that quote

currency pairs beyond the standard “4 and

2” decimal places to “5 and 3” decimal

places. They are quoting **FRACTIONALPIPS**, also called “points” or “pipettes.”

A “point” or “pipette” or “fractional pip” is

equal to a **“tenth of a pip”**. For Example: if

GBP/USD moves from 1.3054**2** to 1.3054**3**,

that .00001 USD move higher is **ONEPIPETTE.**

## How to Calculate The Value of a PIP

As each currency has its own relative value,

it’s necessary to calculate the value of a pip

for that particular currency pair.

Example: USD/CAD = 1.0200

(use a quote with 4 decimal places)

(The value change in counter currency)

times the exchange rate ratio = pip value

(in terms of the base currency)

[0.0001 CAD] x [1 CAD/1.0200 CAD] Or

simply as:

Using this example, if we traded 10,000

units of USD/CAD, then a one pip change to

exchange rate would be approximately a

0.9804 USD change in the position value

(10,000 units x 0.00009804 USD/unit).

We say “approximately” because as the

exchange rate changes, so does the value

of each pip move.

## Understanding Rollover

Rollover is the procedure of moving open

positions from one trading day to another.

If a trader extends his position beyond one

day, he/ she will be dealing with a cost or

gain, depending on prevailing interest rates.

Most brokers and trading platforms perform

the rollover automatically by closing any

open positions at the end of the day, while

simultaneously opening an identical

position for the following business day.

## Understanding Swap

A swap is the interest rate differential

between the two currencies of the pair you

are trading and charged when you keep a

position open overnight.

During this rollover, a swap is calculated.

A swap is a FEE that is either paid or

charged to you at the end of each trading

day if you keep your trade open overnight.

If you are paid swap, cash will be added to

your Balance, if you are charged swap, cash

will be deducted from your Balance.

All open forex positions at the end of the

day (5:00 PM New York time) are

automatically rolled over to the next

settlement date.

## How to Calculate Swap

For forex, here’s the formula to calculate swap:

In the spot forex market, trades must be

settled in two business days.

For example, if a trader sells 100,000

pounds on Monday, then the trader must

deliver 100,000 pounds on Wednesday

unless the position is rolled over.

All open forex positions at the end of the

day (5:00 PM New York time) are

automatically rolled over to the next

settlement date.

The rollover adjustment is simply the

accounting of the cost-of-carry on a

day-to-day basis.