Forex Pips, Trends and Charts

All traders in the foreign exchange (forex) market are seeking to find as many of these sometimes elusive characters as possible. They are called pips. In forex trading, a pip is the unit of measurement for the smallest change in the price of a currency or currency pair. Generally speaking, as to certain major currency pairs such as the EUR/USD (Euro/U.S.Dollar), if a trader commits one standard lot (equal to 100,000 units of the currency traded) to the trade, a movement of one pip in the trader’s favor will yield a profit of $10.

The off-exchange retail foreign currency market, also known as the “Forex” or “FX” market, is the largest financial and investment market in the world. But what is it, exactly? It is important to understand that trading currencies is a very risky form of investing, and any funds used when speculating on the values of currency prices should be considered risk capital. A scalpers philosophy is to take advantage of the many smaller moves the forex market has to offer with an automated forex trading system. The logic here is that many small profits add up to substantial profits. In EUR/USD a movement from 1.0066 to 1.0067 is one PIP, so a PIP is .0001. In USD/JPY a movement from 120.45 to 120.46 is one PIP, so a PIP is .01.

For most, but not all, currencies a pip is 0.0001 or 0.01%. So, when a currency moves from a price of 1.7800 to 1.7805 it is said to move 5 pips. In this case the situation is simple because a pip will always have a value of $10. So, if you are trading GBP/USD and the market moves in your favor by 5 pips you will make a profit of $50. Let’s see this in action. Now let’s look at the situation when the US Dollar is the base currency and consider a quote of USD/GBP = 0.5170. Here 1 US Dollar is worth 0.5170 UK Pounds and 100,000 US Dollars are worth 517,000 UK Pounds.

If a broker is offering a spread as low as 1 pip, be cautious. As most of the brokers do not charge a commission, it the spread they use to make their money. In a 1 pip spread, there is very little scope for him to make profit.

Related posts:

1. People Are Making A Living Trading Forex Online Retail traders are most usually unfamiliar with the mechanisms...
2. Forex Currency Trading For The Average Person Forex currency trading is a form of trading that...
3. Deciding Between a a foreign exchange Mini Account and a Demo Account The smaller version of the normal Forex account is...
4. Employing the MACD Indicator on Forex Charts One of the vital tools on FX charts is...
5. Exactly What Is Foreign Exchange Trading And How To Read It Fx Trading is certainly trading currencies from several countries...