Understand the price tag in one article, don't let costs steal your profits
Having understood the battlefield and weapons, now it's time to see clearly the “price tag” and “user manual”, otherwise, even the best equipment can hurt you.
Core Cost - Spread: your “instant ticket”
Every time you trade, you will see two prices: the buy price (what you have to pay) and the sell price (what you can get). The difference between them is the spread, which is the instant fee paid to the market. The spread for major currency pairs (like EUR/USD) may be only 1-2 pips, while obscure varieties may exceed 10 pips. Key point: the spread is variable, and during major news releases, it can expand several times instantly, significantly increasing your costs.
Double-edged Sword - Leverage: an amplifier and an accelerator
Leverage allows you to control a $10,000 trade with a $100 margin (1:100). It amplifies profit potential, but losses also increase proportionally. This is not a platform feature, but rather the credit limit given to you by the broker based on regulations. Beginners should avoid using high leverage (like 1:500), as it may deplete your capital in a single fluctuation.
Lifeline - Stop Loss: your only “escape button”
This is an automatic closing line that must be set when placing an order. For example, if you buy euros at 1.1000 and set the stop loss at 1.0980, it means you will accept a maximum loss of 20 pips. Not setting a stop loss is like driving without a seatbelt. In MT4, you can set or modify it anytime during or after placing an order.
Practical Calculation - From Pips to Money
Take gold (XAU/USD) as an example: a price movement of $1 with a trade of 1 standard lot (100 ounces) results in a profit or loss of $100. If you have $1,000 in your account and trade 0.1 lots, if the gold price moves against you by $10, you will lose $100, which is 10% of your capital. Position management is the core mathematics of controlling risk.
Action Checklist: 1) Check the typical spread of the asset before trading; 2) Start with low leverage (like 1:30); 3) Set a stop loss on each order; 4) Practice calculating position size and profit/loss with a demo account. Rules are the first line of defense for survival.