Forex Pips Explained
Author: Craig Summer
Forex pips explained describes what forex pips are all about. If you are looking at the forex markets as a potential way of generating extra income, then you will probably have come across this term. I could make a joke about apples or oranges, but everybody’s already done those! You will need to understand what pips are if you are thinking about becoming a home trader on forex.
You will not believe how simple it is to understand what a pip is. PIP stands for Percentage In Point. It is the smallest price increment in Forex Trading. For the US dollar one pip is equivalent to the fourth decimal point, or 0.0001 of a dollar (or 1/100th of a cent.) So, for example the US Dollar / Euro bid is 1.3400 and was offered at 1.3395 the spread difference is 5 pips. Simple enough?
However this four decimal point rule does not apply in all currency markets. For example, for the Japanese Yen a pip is equivalent to the second decimal point, or 0.01 Yen.
Why do currency markets trade in pips, simple, when the major forex traders such as banks, trade in hundreds of millions of dollars, each 0.0001 of a dollar is worth thousand of dollars.
And even for the smaller home investor, you have to remember that you are likely to be trading with a leverage factor of 100 to 1. For a hundred dollars invested, you will actually be trading ,000, so for you, in these circumstances, a pip is worth a dollar.
One of the things you will have to think about when starting to trade on forex is a choice of online broker. When you start trading, the guidance is that you invest small amounts until you develop and understand your trading style. From the point of view of the online broker, these small investments represent a very small return on their investment of maintaining websites, help lines and providing free online training.
It is therefore not too surprising that they would expect you to close your deals for a greater spread difference in pips than if you were trading 10’s of thousands of dollars. It is just the same as buying sugar – buying a 100lb sack is going to be cheaper, per pound, than buying a 2-pound bag.
Article Source: http://www.articlesbase.com/currency-trading-articles/forex-pips-explained-728773.html
About the Author
For a free 11 page expert guide on the forex trading market, visit www.forex-wizard.com where you will find more information about forex and reviews about online forex brokers and forex robots
Craig Summer is an Internet publisher and author.
November 30, -0001
12:00 am #comment-1
Forex (or foreign exchange) market is a market where different national currencies are bought and sold. In order to make money in the forex market, you need a good trading strategy extensively backtested on at least 15 years of data. Better yet, you should have a suite of strategies and a strategy for changing strategies…
November 30, -0001
12:00 am #comment-2
Basically Forex is foreign exchange say for example the eur the british pound an etc.To make money in forex you are hoping that one currency goes up in value against another.You trade the price difference much like the stock market.A forex trader is just simply someone who trades forex.I think that’s what you are looking for.A great place to start your education is http://www.babypips.com I would also recommend you practice trade before you acutally put any real money into it.As forex is a great financial instrument in which great profits are achieved every day.There is substantial risk involved as in any other investment.Hope this helps you out n the best of luck to you
November 30, -0001
12:00 am #comment-3
Unfortunately I never found any good signals provider. If you check for reviews on those type of services, you’ll see most of them are useless.
The closest thing to a signal service that I use is a system called Supra Forex, however that’s not a signals service. It’s a software that gives trading signals.
November 30, -0001
12:00 am #comment-4
There is a good website called http://www.oanda.com It gives you an idea about currency changes, cheat sheets for travellers etc., For business travellers, it allows to create an online travel accts statement too
November 30, -0001
12:00 am #comment-5
The headline and name “Forex Made Easy” is a gimmick to get new customers. I would say the company is legitimate, but the name is simply an advertising ploy to draw new customers. They’ve tried to make the “process” of setting up a Forex account “easy,” but you have to go through the same process anywhere you open an account.
The gimmick here is that it implies that “trading the Forex” is “easy.” It seems to imply that all trading is “Easy” as long as you sign up with them. If that were true, we would all be rich.
Trading is the most difficult endeavor you will ever undertake. To think it could be “easy” is unrealistic, unreasonable, irrational. Dream on.
August 8, 2006
3:16 pm #comment-6
Can someone explain the ForEx market in laymen’s for me?
I’m considering getting into the Forex market soon and am starting to do some homework. If someone could just lay out how things work and how you actually make (or lose) money, that would be nice. Also, what exactly is a pip and a lot? Thanks in advance.
August 27, 2006
11:41 pm #comment-7
Does “forex made easy” system work? Can someone explain the trading of the four currencies. Should I get this?
Does “forex made easy” system work? Can someone explain the trading of the four currencies. Can anyone do the trading from their home computer?
September 7, 2006
5:55 am #comment-8
Is there a web site that easily explains Forex trading and currency exchange in general?
January 25, 2009
7:30 pm #comment-9
Can someone explain FOREX and FOREXTrader to me?
Please.
February 10, 2010
1:40 pm #comment-10
Can you explain me more about forex signal provider, and how do they work?
there are a lot of forex signal provider that can support my activity in the market, unfortunately I still confused about it.