Forex trading is the buying and selling of currencies in order to make a profit. In order to be successful, traders must have a deep understanding of the market and be able to calculate orders effectively. In this article, we will explain how to calculate orders in forex trading.
What is an order in forex?
An order is a request to buy or sell a currency pair at a specific price. It is an instruction that is sent to your broker to execute a trade. There are two types of orders in forex trading: market orders and limit orders.
Market orders are executed at the current market price. This means that the trader is willing to buy or sell the currency pair at the prevailing market price.
Limit orders are executed at a specific price. This means that the trader is willing to buy or sell the currency pair at a specific price, which may be higher or lower than the current market price.
Calculating a market order
Calculating a market order is relatively simple. Let’s say you want to buy 1 lot of EUR/USD at the current market price of 1.2000. A lot in forex trading is equal to 100,000 units of the base currency. In this case, the base currency is EUR.
To calculate the value of the trade, you need to multiply the lot size by the current market price. In this case, the calculation would be:
1 lot x 100,000 units x 1.2000 = $120,000
This means that the value of your trade is $120,000. However, you need to have enough money in your trading account to cover the margin requirements. Margin is the amount of money that is required to open a position.
Calculating a limit order
Calculating a limit order is a bit more complicated. Let’s say you want to buy 1 lot of EUR/USD at a limit price of 1.1900. In this case, you are willing to buy the currency pair at a lower price than the current market price.
To calculate the value of the trade, you need to first calculate the pip value. A pip is the smallest unit of measurement in forex trading. It represents the fourth decimal place in a currency pair. In this case, the pip value is:
(0.0001 / 1.1900) x 100,000 = $8.40
This means that each pip movement in the currency pair is worth $8.40.
Next, you need to calculate the number of pips between the limit price and the current market price. In this case, the calculation would be:
1.2000 – 1.1900 = 100 pips
Finally, you need to calculate the value of the trade. To do this, you need to multiply the pip value by the number of pips and the lot size. In this case, the calculation would be:
100 pips x $8.40 x 1 lot = $8,400
This means that the value of your trade is $8,400. However, you need to have enough money in your trading account to cover the margin requirements.
Conclusion
Calculating orders in forex trading is an essential skill for traders. It is important to understand the difference between market orders and limit orders, and how to calculate the value of each trade. By following the steps outlined in this article, you can calculate orders with confidence and make informed trading decisions.
