| Understanding Forex Pips |
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| Written by Bart Icles |
| Thursday, 06 August 2009 23:43 |
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A Pip is the term for Percentage In Point or Price Interest Point. It is the smallest measurement for the smallest value (price) change of a currency. This term is one of the most important one among many in Forex currency trading, and should be properly understood by any new Forex trader.
A Pip is the term for Percentage In Point or Price Interest Point. It is the smallest measurement for the smallest value (price) change of a currency. This term is one of the most important one among many in Forex currency trading, and should be properly understood by any new Forex trader. Currency pairs are quoted accurately to the fourth decimal place because Forex transactions are mostly involves large sums, and Forex spreads are the exact opposite. This defines the smallest movement of a paired currency and is called a Pip. An example would be: if the USD/EUR moves from 1.2345 to 1.2346, then the Pip would be 1. If it changes from 1.2345 to 1.2305, the change in Pip would be 40 Pips. On the currency market, there are the 6 widely-traded called the majors that is made up of the following: * EUR/USD, also called the 'EURO" * GBP/USD, also called the "CABLE" * USD/CHF, also called the "SWISSIE" * USD/JPY, also called the "NINJA" * USD/CAD, also called the "LOONIE", or "BEAVER" * AUD/USD, also called the "AUSSIE" The currency pair of EUR/USD is the most widely-traded of the 6 majors, averaging 100 Pips a day. Profits and losses are measured in Pips for any paired currency, though the Pip for a USD/JPY or US Dollar/Japanese Yen is not the same value as the Pip of a USD/EUR, or US Dollar/Euro, as it is quoted only at two decimal places; so the yen's Pip value is .01. If the currency pair of USD/JPY moves from 110.95 to 111.00, it has gained 5 Pips. If the USD/CAD goes from 1.0234 to 1.0224, it lost 10 Pips. So if the USD/JPY went from 77.48 to 77.53, the increase would be 5 Pips. If you trade with the majors' like the AUD/USD and the exchange rate is at 1.9876, then 1 Pip for this trade is .0001, since it is set four decimal places. So, in Forex trading "30 Pips" would mean thirty units of value in trading. Since individual currencies have different quotes in terms of Pips, it's important to take note of such differences so as not to get confused in your trading. Dealing with large sums might seem daunting at times, but will get easier gradually as you begin to get acquainted with Forex trading as time passes. In order not to get confused with the quotes, most currency paired with the USD are placed at 4 decimal places or .0001, while the yen is place at 2 decimal places or .01. Keeping this information on Forex Pips at all times during your trading can greatly help. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. A live forex chart is better than a dead one:). Also, the best forex platforms are free and we recommend the metatrader platform so click to come and learn how to use it properly. |
| Last Updated on Friday, 07 August 2009 19:22 |