FAP Turbo

Make Over 90% Winning Trades Now!

Thursday, July 30, 2009

Understanding Forex Pips

By Bart Icles

The most important thing a new Forex trader must do is to lean how to understand the value of a PIP in a paired currency. A PIP is the acronym for Percentage In Point, or Price Interest Point which is the smallest measure of value in any paired currency in Forex.

Since Forex spreads are relatively very small, and Forex transactions involve mostly large amounts of currency, the currency pairs of majors are quoted accurately to the fourth decimal place, with the exception of the Japanese yen. For example, if the USD/EUR shifts from 1.2345 to 1.2346, the change is 1 Pip. If it shifts from 1.2345 to 1.2305, then it moved by 40 Pips. The 6 most liquid and widely traded currency pairs globally are the:

* 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.

Also, profits and losses are measured in Pips, with the exception of the USD/JPY, since it is quoted at the second decimal place due to having a cent or of a hundredth in some major currencies. The yen's Pip value is .01, while other majors are placed at .0001.

If you trade the currency pair of USD/JPY at 110.95 and moves to 111.0, it gained 5 Pips. With a quote of 77.48 that changed to 77.53 would mean a 5 Pip increase. If it were the USD/CAD pair while at 1.0234, then changes to 1.0224, 10 Pips would have been lost. Trading with the AUD/USD with an exchange quote of 1.9876, the Pip equivalent is .0001, as it set by market makers at 4 decimal places.

Basically, when you hear someone say, "30 Pips", it denotes thirty units of value in trading. Individual currencies are not similarly quoted in terms of Pips, so it's best to review all the currencies you encounter during 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.

Many other currencies besides the Yen have a four decimal place - those mainly paired with the USD at .0001. If you just keep in mind that a Forex Pip is one unit of the furthest listed decimal place, and that each currency pair is assigned a different value, then you'll be well on your way to becoming a future, successful trader. - 23211

About the Author:

0 Comments:

Post a Comment

Subscribe to Post Comments [Atom]

<< Home