Assume that an investor opens a forex account by depositing $50,000.

Let us assume that the current EURUSD exchange rate is 1.3500. An investor expecting an upward movement in the euro will take a LONG position on the EURUSD pair.

In this case, the investor will open the following position:

1 LOT = 100,000 units = 100,000 EUR = 135,000 USD position size.
(The investor buys 100,000 EUR and sells 135,000 USD.)

For this transaction, 10% of the position size will be used as margin from the account balance. Accordingly:

Initial Margin = $135,000 / 10 (Leverage Ratio) = $13,500
(An amount of $13,500 will be reserved from the account as margin to open the position.)

In summary, the investor has opened an upward (long) position with a position size of 1 LOT = 100,000 EUR = $135,000.

If the EURUSD pair rises to 1.3600 (a 100-pip increase), what will be the profit or loss on the investor’s account?

1 LOT = 100,000 units = $136,000 position size, therefore:
Position value difference: $136,000 - $135,000 = $1,000 profit will be reflected in the investor’s account.

If the investor had executed the same trade with 0.10 LOT, the following situation would occur:

0.10 LOT = 10,000 units = 10,000 EUR = $13,500 position size.
(The investor buys 10,000 EUR and sells 13,500 USD.)

For this transaction, 10% of the position size will be used as margin. Accordingly:

Initial Margin = $13,500 / 10 (Leverage Ratio) = $1,350
(An amount of $1,350 will be reserved from the account as margin to open the position.)

In summary, the investor has opened an upward (long) position with a size of 0.10 LOT = 10,000 EUR = $13,500.

If the EURUSD pair rises to 1.3600 (a 100-pip increase), then:
0.10 LOT = 10,000 EUR = $13,600 position size.