So what we are effectively doing is buying €10,000 worth of US Dollars at the exchange rate 1.35917. We are looking for the exchange rate to rise (i.e. the Euro to strengthen against the US Dollar) so we can close out our position for a profit.

So let’s say the exchange rate moves from **1.35917 to 1.36917** –the exchange rate rose by 1c ($). This is the equivalent of **100 pips**.

So with a lot size 10,000, each pip movement is $1.00 profit or loss to us (10,000* 0.0001 = $1.00).

As it moved upwards by 100 pips we made a profit of $100.

For example’s sake, if we opened a lot size for 100,000 units we would have made a profit of $1,000.

Therefore lot sizes are crucial in determining how much of a profit (or loss) we make on the exchange rate movements of currency pairs.

We do not have to restrict ourselves to the historical specific amounts of standard, mini and micro. We can enter any amount we wish greater than 1,000 units. 1,000 units is the minimum position size we can open.

So for example, we can sell 28,000 units of the GBPJPY currency pair at the rate of 156.016. Each pip movement is ¥ 280 (28,000 * 0.01). We then take our ¥ 280 per pip and change it to the base currency of our account which of course our broker does automatically.

So with a Euro denominated account a fall of 50 pips to 155.516 would mean a profit of 106.00 (50* 2.12).

### What is Leverage & Margin?

Trading with leverage allows traders to enter markets that would be otherwise restricted based on their account size. Leverage allows traders to open positions for more lots, more contracts, more shares etc. than they would otherwise be able to afford.