Calculating Margin Requirements for a Trade and the Remaining Account Equity
You want to buy 100,000 Euros (EUR) with a current price of 1.3500 USD, and your broker requires a 1% margin = 1:100.
Required Margin = 100,000 x 1.3500 x 0.01 = $1,350.00 USD.
Before this purchase, you had $2,000 in your account. How many more Euros could you buy?
Remaining Equity = $2,000 – $1,350 = $650
Since your leverage is 100, you can buy an additional $65,000 ($650 x 100) worth of Euros:
65,000 / 1.35 ≈ 48,148 EUR
To verify, note that if you had used all of your margin in your initial purchase, then, since $2,000 gives you $200,000 of buying power:
Total Euros Purchased with $200,000 USD = 200,000 / 1.35 = 148,148 EUR
Example—Converting CAD Pip Values to USD.
You buy 100,000 Canadian dollars with USD, with conversion rate USD/CAD = 1.1000. Subsequently, you sell your Canadian dollars for 1.1200, yielding a profit of 200 pips in Canadian dollars. Because USD is the base currency, you can get the value in USD by dividing the Canadian value by the exit price of 1.12.
100,000 CAD x 200 pips = 20,000,000 pips total. Since 20,000,000 pips = 2,000 Canadian dollars, your profit in USD is 2,000/1.12 = 1,785.71 USD.
Example—Calculating Profits for a Cross Currency Pair
You buy 100,000 units of EUR/JPY = 164.09 and sell when EUR/JPY = 164.10, and USD/JPY = 121.35.
Profit in JPY pips = 164.10 – 164.09 = .01 yen = 1 pip (Remember the yen exception: 1 JPY pip = .01 yen.)
Total Profit in JPY pips = 1 x 100,000 = 100,000 pips.
Total Profit in Yen = 100,000 pips/100 = 1,000 Yen
Because you only have the quote for USD/JPY = 121.35, to get profit in USD, you divide by the quote currency’s conversion rate:
Total Profit in USD = 1,000/121.35 = 8.24 USD.
If you only have this quote, JPY/USD = 0.00824, which is equivalent to the above value, you use the following formula to convert pips in yen to domestic currency:
Total Profit in USD = 1,000 x 0.00824 = 8.24 USD.