Forex lot sizes and leverage
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Each currency pair is bought or sold in units called lots. One lot represents 100,000 units of the base currency. If the base currency is the EUR then you are buying or selling 100,000 Euros.
As you can see with a lot size of 100,000 units, you have a large amount of leverage available to you. In fact, your leverage can be as high as 400:1. That means that with $250 you can control 100,000 units of the base currency. This also means that for every pip that the pair goes up or down you will see and increase or decrease in the value of the pair. If the EUR/USD goes up 10 pips from the price you bought it, that would be a $100 profit, based on this leverage. This can bring significant gains as the pair moves in the direction you have anticipated.
Leverage is great as the currency pair moves in our direction, but not so nice if the pair moves against us. There are two things that you need to consider when using leverage. First, you should realize that there is the possibility of a large loss if the pair moves quickly in the wrong direction. Second, you may get a “margin call” where you would be closed out of your trades automatically. The nice thing about the margin call is that it will keep you out of a situation where you would owe more money that you have in your account. It is set up to protect you as a trader. TradeSTEPS4x teaches strict money and risk management rules to help you avoid both of these situations.
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