FAQs - For Beginners of MT4 and Forex Trading

Are you new to the FX market and you want to learn how to use the MT4 trading platform?

MT4 trading platform is the most popular trading platform in the world and there are many online Forex and CFD brokers that provide the service through MT4.

In this article, we have listed up the most frequently asked questions for traders who have started trading Forex for the first time.

How to calculate profit/loss of Stop loss and Take profit?

Strike Price = 1.15151

Take Profit = 1.16151 = 100 Pip movement

Stop Loss = 1.14151 = 100 Pip movement

Pip value * Pip Movement = P/L when Stop Loss or Take Profit is triggered

11.5 * 100 = +-1150$

How do I calculate Trading Commissions?

Commission per 1 lot * Contract size = Commission in Base Currency

4.5 * 0.10 = 0.45$

Commission * Base Currency vs Account Currency = Commission is Account Currency

0.45$ * 1.15151 = 0.52$

What is the spread?

The spread is the difference between Bid and Ask prices.

How do I calculate spreads?

Bid Price – Ask Price = Spread

1.15140 – 1.15151 = 0.00011 = 1.1 pip spread

What is Swap?

Swap is a rollover interest for keeping your positions open overnight, that can be both positive or negative.

How do I calculate swaps?

If Swaps are given in Points

Pip Value * Swap Rate * Number of Nights / 10 = Swaps

11.5 * -8.3 * 5 / 10 = 47.725$

If swaps are given in Pips

Pip Value * Swap Rate * Number of Nights = Swaps

11.5 * -0.83 * 5 = 47.725$

What is leverage?

Leverage is a consequence of Margin, allowing you to place larger trades on the market.

It can help you maximise your returns but also works the same way with losses.

Understanding and controlling your leverage is extremely important.

What is Margin?

Margin is an amount of the equity in your account delegated as Margin Deposit.

Your trade size will determine the amount of margin needed to hold a position open.

Your Margin Requirements increase as your Trade Size does.

How do I calculate Free Margin?

Equity – Margin (used) = Free Margin

10950$ – 115.151$ = 10834.849$

How do I calculate Margin Level?

Equity / Margin (used) * 100 = Margin Level

10,950$ / 115.15 * 100 = 9509.34%

How do I calculate margin requirements?

Assuming Account Balance is in USD and you are trading EUR/USD

1 standard lot size * Trade Size * Margin = Margin Required in Base Currency

100,000 * 0.1 (10,000$) * 0.01 = 100$

Margin Required * Exchange Rate of Base Currency vs Account Currency = Margin Required in Account Currency

100 * 1.15151 = 115.151$

What is a pip?

A pip is the smallest unit of change in a financial instrument’s price ratio (rate of a currency pair).

How do I calculate a value of 1 pip?

Amount of Base Currency * Pips = Value in Quote Currency

Value of 1 pip in EUR/USD= 1 Lot (100 000$) * 0.0001= 10 USD

Value of 1 pip in USD/CHF= 1 Lot (100 000$) * 0.0001=10 CHF

Value of 1 pip in EUR/JPY=1 Lot (100 000$) * 0.01= 1000 JPY

How do I calculate Equity?

Balance +- P/L (open positions) +- Swaps/Commotions = Equity

10000$ + 1000$ – 50$ = 10950$

How do I calculate Leverage?

1 / Account Margin = Leverage

1 / 0.02 = 50

How do I calculate Margin?

1 / Account Leverage = Margin or Margin Percentage

1 / 50 = 0.02 or 2%

What is an Expert Advisor?

An EA or Expert Advisor is a custom made Algorithmic Trading Program that is pre-programed to look for certain market conditions that you run through your trading platform to either allow you to have an automated trading account or signal you when certain market conditions are met.

What is the difference between an “intraday” and “overnight” position?

Intraday positions are those positions opened anytime during the 24-hour period AFTER the close of XM’s normal trading hours at 23:59 GMT.

Overnight positions are positions that are still open at the end of normal trading hours, which are automatically rolled over by XM at competitive rates (based on the interest rate differentials of currencies) and applied as roll points.

Can I go long and short at the same time?

Absolutely. XM wants to maximise its client’s flexibility to hold positions for different durations or as part of different strategies.

How much money is required to open a position?

The minimum contract size that you can trade is 0.01 of a standard lot which requires a $10 margin requirement for most of the instruments.

Other products might require higher margins.

For full details, please see the Contract Specifications for the required margins on all the products on the website under the Trading section.

Why should I place a Stop Loss (S/L)?

A Stop Loss protects you on trades that go against you, and therefore also protects your overall account balance.

Markets can be volatile and it is recommended to always use Stop Loss to limit any losses.

How do I set a stop loss or take profit?

Access the Edit Position pop up dialog: Create a Take Profit position by selecting Close at profit and specifying a triggering Rate or Amount.

What is “Take Profit” and “Stop Loss”?

Stop losses and take profits are both orders, which are placed in the market to close an open position.

“Stop Loss” is to prevent further adverse price movement and “Take Profit” is to gain from advantageous price movement.

How can I manage risk in volatile markets?

Some ways to manage your risk during volatile markets is to ensure your account is sufficiently margined at all times.

Several precautionary measures are recommended:

• Monitor the status of your open positions.
• Specify a stop-loss to limit downside risk.
• Keep your account funded in excess of your required margin.

What is a Pivot Point?

A Pivot Point is an Indicator of potential market movement at a specific Price Level.

It is calculated by an average of significant prices.

What is a slippage?

Slippage may occur during periods of high market volatility, usually caused by important economic news.

It results in your position being executed at a different rate than the rate you specified; closing at the next available price.

What happens to my open positions at the end of the trading day?

XM automatically rolls forward all open currency positions to the next day’s value date at the end of each business day at 23:59 GMT.

Trading is typically suspended for up to one minute during the roll process.

Depending on the currency pairs involved, trades will either earn or pay a small premium, depending on the interest rate differential between the two currencies.

What do “long” and “short” positions mean?

Long position – when the client is buying the asset and a short position when the client is selling the asset.

Are there any disadvantages to trading on leverage?

While leverage enables you to control a large amount of capital with a small deposit margin, it may also expose you to outsized negative price movement.

What is an Index (Indices)?

An Index is a collection of Stocks in one index, giving a total value on the collective stocks, as the stocks values inside the index fluctuate so does the overall value of the Index itself.

What is Forex?

Foreign Exchange market (Forex, FX, currency market) is an over the counter (OTC) or decentralized global market for buying and selling currencies at current or determined prices.

What is a Commodity?

A commodity is mostly Raw Materials that can be Bought or Sold, for example Gold, Silver or Oil.

What is a CFD?

A CFD is a Contract for Difference, meaning when trading you will not be physically purchasing any on the instruments, you activate a contract with the company in trading on the difference in value from the strike price to the closing price in which you may take either a Long or Short position.

Who trades in the Forex Market?

The Forex market, unlike the stock market, is decentralised with many participants.

Until relatively recently, forex trading was largely the exclusive preserve of central banks, large financial institutions, multinational firms, investment managers, hedge funds, insurance companies and brokerage firms.

The emergence of the internet, combined with the introduction of technologically advanced retail trading platforms has vastly changed the forex trading landscape, opening up this potentially lucrative marketplace to a growing number of individual retail traders.