Learn about Forex Pips.

When you begin finding info on currency trading books, you will immediately notice references to the forex pip. Your profits and losses will be calculated in pips. another thing that is measured in pips is the spread, the variation between the bid and ask prices which is the main cost of currency exchange and how the brokers achieve their wealth. hence it is undoubtedly very critical to know what is a forex pip.

The acronym stands for Percentage in Point (or sometimes, price interest point). It is the least increment of changes in values. It allows us to measure a rise or fall in currency values in percentage terms as a replacement for of dollars and cents.

Why is it necessary to talk inpips? The purpose for this is clear. In the forex market there is no common currency in which to express prices. The US $ may be the most regularly traded currency but it is not drawn in in all trades. If you are are doing currency trading cross rates, i.e. two other currencies such as EUR/GBP or any other pairs that does not contain USD, it would not make any sense at all to express your gains and losses in terms of USD. As a substitute, we require something that is a small percentage of the value of whichevercurrencies we are doing the trade with.

This just means that he monetary rate of a pip differsaccording to the currency pair. There are numerous useless automated forex software out there. Even if you are using a genuine automated forex software you should learn the meaning of PIP

Most currencies are quoted to four decimal points. For instance you might notice the bid price for EUR/USD quoted at 1.3641 and ask price 1.3645. The difference (the spread) is 0.0004 or 4 pips. Here a pip is 0.01% of a lot.

hence if the lot size was $100,000, one pip would be worth USD10. Similarly fora lot size of $10,000, one pip would be USD1.

That is the value of pips when the US dollar is the quote currency, i.e. XXX/USD. But ifthe quote currency is changed, one pip is generally 10 units of that currency (e.g. 10 euros or 10 pounds). Or in caseyour lot size is 10,000 units, one pip is 1 unit (1 euro or 1 pound).

The exception is the Japanese yen which has a very lowunit value than most currencies (you get a lot of yen to the dollar). For this reasonof this, the yen is usually quoted to the second decimal point. You might observe a price USD/JPY 110.12. In this case one pip is 0.01 or 1% but in yen, not dollars. So the pip value is JPY 1000 which at that price would be worth US $11.012.

These figurescan be confusing when you are new to forex. So it is better to start trading consistently with just one forex currency pair.

When you trade in one pair consistently daily you will soon get used to how much a pip means in terms of your actual profits and losses in your account. You will recognize how much one pip is worth in dollars or in your own currency.

Read the rest of this forex pip tutorial here…