STAGE 2

● WHAT IS A PIP?
● CONCEPT OF BID AND ASK PRICE
● WHAT IS A SPREAD?
● FORMS OF TRADING ORDERS
● CONCEPT OF TAKE PROFIT AND STOP LOSS
● LEVERAGE
● LOT SIZE
● RISK MANAGEMENT
● MT5 INTERFACE

WHAT IS PIP?
A PIP, short for point in percentage, is simply the smallest unit in which the price of a
commodity can change. It can also be defined as a standardised unit at which the price of a
commodity in the Forex market can change.
PIP helps you to estimate the pip value in your trade so that you can better manage your
risk.
HOW TO CALCULATE PIP VALUE
The pip value for a contract on Deriv MT5 is calculated based on this formula:
Pip value = point value × volume × contract size
For Synthetic accounts, the pip value is calculated in USD.
For financial accounts, the pip value is in the quote currency for forex pairs.
EXAMPLE (synthetic indices)
Let's say you want to trade 1 lot of volatility 75 index
0.01(Point value1) ×1(Volume) ×1(contract size2) = 0.01(pip value)
1 The point value is derived from the current digits of the assets. In the example, the digit is
2, so the point value is 0.01.
2 The contract size is one standard lot of Volatility 75 index = 1
So, your pip value is 0.01USD.

CONCEPT OF BID AND ASK PRICE

BID PRICE: This is the price that buyers are willing to buy an asset.
WHILE
ASK PRICE: This is the price that buyers are willing to buy an asset.
We would break it down now
Whenever you open your MT5, you see that there are 2 prices beside each quote
See imagine below
From the Image above u would see something like
Volatility 10 index - 6843.04 6843.20
6843.04 Is the Bid Price
While
6843.20 Is the ASK Price

So, the meaning of the above is that when you place a BUY ORDER in Forex
It would activate for you using the Ask price
(remember that the Ask price is the Price that Sellers are willing to Sell to you, who is the
Buyer)
While in reverse
When you place a SELL ORDER in Forex
It would activate for you using the BID price
(remember that the BID price is the Price that Buyers are willing to Buy from you, who is the
Seller)

SPREAD
SPREAD is the difference between the BID and ASK price.
In a simple example;
If the BID price is #170 and the ASK price is #150
The Spread is #170 - #150 = #20
The Spread is 20 Naira.
So, from the image example above
6843.04 Is the Bid Price
While
6843.20 Is the ASK Price
The Spread is 6843.20 - 6843.04 = .16

In Forex, the Spread is the profit of the Brokers (in this case Deriv), however in this case, it's
very small because it's measured in pips.

FORMS OF TRADING ORDERS

There are Basically 3 Type of Trading Orders:
1) INSTANT MARKET EXECUTION
2) STOP ORDERS
3) LIMIT ORDERS

Instant Market execution

This simply implies that you are Buying at that Instantaneous Market Price.
Simple as that!
For example, an asset is Presently at $50 and you Clicked on Buy. What you just did is
Instant Market Execution because you bought at that current price.

Stop Orders
A stop order “stops” an order from executing until price reaches a stop price. You would use
a stop order when you want to buy only after price rises to the stop price or sell only after the
price falls to the stop price.
A stop entry order is an order placed to buy above the market or sell below the market at a
certain price.
You place a “Buy Stop” order to buy at a price above the market price, and it is triggered
when the market price touches or goes through the Buy Stop price.
You place a “Sell Stop” order to sell when a specified price is reached.

Limit Orders
A limit order is an order placed to either buy below the market or sell above the market at a
certain price.
This is an order to buy or sell once the market reaches the “limit price”.
You place a “Buy Limit” order to buy at or below a specified price.
You place a “Sell Limit” order to sell at a specified price or better.
Once the market reaches the “limit price” the order is triggered and executed at the “limit
price”.

CONCEPT OF TAKE PROFIT AND STOP LOSS

Take Profit and Stop Loss Are Forms of Market orders.
As a trader, you will not always be online monitoring all your Trades. Some of your trades
may stay overnight, some may last for 2 days, and you may have other engagements or you
are at work. That's where Market orders come into play.

TAKE PROFIT is a Form of market order that tells your Broker to close your Trade for You
and Lock in your Profit when your trade moves a certain number of Pips in your desired
direction, even if you are not online.
 For example: you traded an asset, say, Vix 75 and It's currently at $40. From your Technical
Analysis you found out that it would soon rise. You immediately opened the BUY position.
Let’s say your Target profit for this Trade is just $50.
For you to set a Target profit at $50, you add it to the price you entered, which was $40, So
your TP would be at $90.
Anytime the asset, Vix 75 starts moving and reaches $90, even if you are not online, Your
MT5 through your Broker’s server would close the Trade for you automatically and add the
$50 profit to your account immediately.
This is how Take Profit works!

STOP LOSS is the opposite of the Take Profit. With Stop Loss, you are giving your Broker
an Instruction to Close your trade when the market goes against you.
Don't forget, your initial price was $40, Thus, Stop-loss of 10 pips would have you set your
Stop Loss price at 30$.
So, anytime the price falls without your knowledge, and gets to $30, Your trade would close
automatically, preventing further losses, even if you are not online.

LEVERAGE
Leverage is a crucial aspect of trading. It refers to using borrowed funds to increase your
trading position beyond what your cash balance allows.
Many traders take advantage of leverage to improve their strategies and maximise their
potential gains. But, there's a catch to leverage: it can also result in larger losses than
expected if it's not used strategically. That's why before applying it to your trades, make sure
you've carefully analysed the markets and are sufficiently confident it will benefit you.

How it works
Essentially, leverage lets you open larger positions for a fraction of the trade’s value. For
example, if you want to open a trade of asset X that costs 1,000 USD, even if you only have
10 USD, you can do so with leverage of 1:100.
The higher the leverage, the lower the capital you need to open a trade. This in turn boosts
the purchasing power of your capital allowing you to take advantage of small price changes
and to expand your market exposure.
For example, if asset X has a price of 100 USD and the leverage is 1:100,
Let’s say you’d like to open a position of 100 lots of X with a buy order (you expect that the
prices of asset X will increase), here are the possible outcomes of the trade opened with
leverage:
If the price of X increases to 105 USD, you make a profit of 5 USD per lot. Since you bought
100 lots, this gives you a total profit of 500 USD (100 lots ✕ 5 USD = 500 USD).
If the price of X decreases to 95 USD, your total loss is 500 USD.
Based on these outcomes, leverage can increase profits, but it can also increase losses.

LOT SIZE
Lot size is simply defined as the amount/quantity of an asset that you bought or sold. In
Forex, assets are not Bought and Sold in singles, but in Packs called Lot sizes.
Instruments in synthetic indices differ in amount per lot and this is determined by how volatile
the instrument is. Below are groupings of the volatility indices.
VERY VOLATILE
Volatility 75 index
Volatility 50(1s) index
Volatility 100 index
Volatility 25(1s) index

LESS VOLATILE
Volatility 10 index
Volatility 10(1s) index
Volatility 25 index
Volatility 100(1s) index

NOT- VOLATILE
Volatility 50 index
Volatility 75(1s) index

HOW TO KNOW SMALLEST/BIGGEST LOT SIZE OF AN INSTRUMENT

From your MT5
>Select the instrument/asset
>details
>minimum/maximum volume

RISK MANAGEMENT
Risk Management is composed of all we have learnt so far. It's all a spectrum.
Synthetic Indices is a very volatile market to trade. Yes, it can make you rich and stable in
time but that comes with patients and consistency.
Because I mentioned that the higher the Lot Size or leverage, the higher the reward doesn't
mean you should go over leverage or overtrade. And you would see someone trying to use
1.0 Lot Size on a $200 account. That's what we Call Over trading in Forex. Always stick to a
Lot size commiserate to your account. Never get greedy. Even if it's the minimum lot size
you are starting with, It's still okay.
If you make $50 daily and you couldn't reach $100 daily,
It's still fair. $50 daily is $250 in a week and not bad for a starter. As time goes on you
progress to $70 to $80 to $100 daily etc