What PIP means in Forex.

What the heck is a Pip?

The most common increment of currencies is the Pip. If the EUR/USD moves from 1.2250

to 1.2251, that is ONE PIP. A pip is the last decimal place of a quotation. The Pip is how

you measure your profit or loss.

As each currency has its own value, it is necessary to calculate the value of a pip for that

particular currency. In currencies where the US Dollar is quoted first, the calculation would

be as follows.

Let’s take USD/JPY rate at 119.80 (notice this currency pair only goes to two decimal

places, most of the other currencies have four decimal places)

In the case of USD/JPY, 1 pip would be .01

Therefore,

USD/JPY:

119.80

.01 divided by exchange rate = pip value

.01 / 119.80 = 0.0000834

This looks like a very long number but later we will discuss lot size.

USD/CHF:

1.5250

.0001 divided by exchange rate = pip value

.0001 / 1.5250 = 0.0000655

USD/CAD:

1.4890

.0001 divided by exchange rate = pip value

.0001 / 1.4890 = 0.00006715

In the case where the US Dollar is not quoted first and we want to get the US Dollar value,

we have to add one more step.

EUR/USD:

1.2200

.0001 divided by exchange rate = pip value

so

.0001 / 1.2200 = EUR 0.00008196

but we need to get back to US dollars so we add another calculation which is

EUR x Exchange rate

So

0.00008196 x 1.2200 = 0.00009999

When rounded up it would be 0.0001

GBP/USD:

1.7975

.0001 divided by exchange rate = pip value

So

.0001 / 1.7975 = GBP 0.0000556

But we need to get back to US dollars so we add another calculation which is

GBP x Exchange rate

So

0.0000556 x 1.7975 = 0.0000998

When rounded up it would be 0.0001

You’re probably rolling your eyes back and thinking do I really need to work all this out

and the answer is NO. Nearly all forex brokers will work all this out for you automatically.

It’s always good for you to know how they work it out.

In the next section, we will discuss how these seemingly insignificant amounts can add up.

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How You Make Money Trading Forex

How You Make Money Trading Forex

The FX market, you buy or sell currencies. Placing a trade in the

foreign exchange market is simple: the mechanics of a trade are very

similar to those found in other markets (like the stock market), so if

you have any experience in trading, you should be able to pick it up

pretty quickly.

The object of Forex trading is to exchange one currency for another in the expectation

that the price will change, so that the currency you bought will increase in value compared

to the one you sold.

Example of making money by buying Euros

Trader's Action EUR USD

You purchase 10,000 euros at the EUR/USD exchange

rate of 1.18

+10,000 -11,800*

Two weeks later, you exchange your 10,000 euros

back into US dollars at the exchange rate of 1.2500.

-10,000 +12,500**

You earn a profit of $700. 0 +700

*EUR $10,000 x 1.18 = US $11,800

** EUR $10,000 x 1.25 = US $12,500

An exchange rate is simply the ratio of one currency valued against another currency. For

example, the USD/CHF exchange rate indicates how many U.S. dollars can purchase one

Swiss franc, or how many Swiss francs you need to buy one U.S. dollar.

How to Read an FX Quote

Currencies are always quoted in pairs, such as GBP/USD or USD/JPY. The reason they are

quoted in pairs is because in every foreign exchange transaction you are simultaneously

buying one currency and selling another. Here is an example of a foreign exchange rate for

the British pound versus the U.S. dollar:

GBP/USD = 1.7500

The first listed currency to the left of the slash ("/") is known as the base currency (in this

example, the British pound), while the second one on the right is called the counter or

quote currency (in this example, the U.S. dollar).

When buying, the exchange rate tells you how much you have to pay in units of the quote

currency to buy one unit of the base currency. In the example above, you have to pay

1.7500 U.S. dollar to buy 1 British pound.

When selling, the exchange rate tells you how many units of the quote currency you get

for selling one unit of the base currency. In the example above, you will receive 1.7500

U.S. dollars when you sell 1 British pound.

The base currency is the “basis” for the buy or the sell. If you buy EUR/USD this simply

means that you are buying the base currency and simultaneously selling the quote

currency.

You would buy the pair if you believe the base currency will appreciate (go up) relative to

the quote currency. You would sell the pair if you think the base currency will depreciate

(go down) relative to the quote currency.

Long/Short

First, you should determine whether you want to buy or sell.

If you want to buy (which actually means buy the base currency and sell the quote

currency), you want the base currency to rise in value and then you would sell it back at a

higher price. In trader's talk, this is called "going long" or taking a "long position". Just

remember: long = buy.

If you want to sell (which actually means sell the base currency and buy the quote

currency), you want the base currency to fall in value and then you would buy it back at a

lower price. This is called "going short" or taking a "short position". Short = sell.

Weekly Forex Market Price Action Outlook for EURUSD

Weekly Forex Market Price Action Outlook for EURUSD – November 10th – 14th 2014http://instaforex.com/en/index.php?x=ICKU
EURUSD – Euro/dollar rotates down to support as downtrend continues
The EURUSD continued falling lower on Friday and broke down below key support at 1.2500 before closing just above that level at 1.2521. This week, we will wait to see what price does at this key 1.2500 support level, if it bounces up from it, we will watch for another selling opportunity on strength, to rejoin the downtrend from value.

EURUSD – Euro/dollar inside bar justbelow resistance

The EURUSD stayed contained under the 1.2500 resistance level today that we discussed in yesterday’s commentary. Price formed an inside bar setup in the process just below that resistance today. If price continues to stay under 1.2500 and breaks down from this inside bar pattern, we could see another leg to the downside in the coming days, in-line with the downtrend.
 

Why Trade Foreign Currencies?

Why Trade Foreign Currencies?http://instaforex.com/en/index.php?x=ICKU

There are many benefits and advantages to trading Forex. Here are just a few reasons why

so many people are choosing this market:

• No commissions.

No clearing fees, no exchange fees, no government fees, no brokerage fees.

Brokers are compensated for their services through something called the bid-ask

spread.

• No middlemen. Spot currency trading eliminates the middlemen, and allows you

to trade directly with the market responsible for the pricing on a particular

currency pair.

• No fixed lot size.

In the futures markets, lot or contract sizes are determined by the exchanges. A

standard-size contract for silver futures is 5000 ounces. In spot Forex, you

determine your own lot size. This allows traders to participate with accounts as

small as $250 (although we explain later why a $250 account is a bad idea).

• Low transaction costs.

The retail transaction cost (the bid/ask spread) is typically less than 0.1 percent

under normal market conditions. At larger dealers, the spread could be as low as

.07 percent. Of course this depends on your leverage and all will be explained

later.

• A 24-hour market.

There is no waiting for the opening bell - from Sunday evening to Friday afternoon

EST, the Forex market never sleeps. This is awesome for those who want to trade

on a part-time basis, because you can choose when you want to trade--morning,

noon or night.

• No one can corner the market.

The foreign exchange market is so huge and has so many participants that no

single entity (not even a central bank) can control the market price for an extended

period of time.

• Leverage.

In Forex trading, a small margin deposit can control a much larger total contract

value. Leverage gives the trader the ability to make nice profits, and at the same

time keep risk capital to a minimum. For example, Forex brokers offer 200 to 1

leverage, which means that a $50 dollar margin deposit would enable a trader to

buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could

trade with $100,000 dollars and so on. But leverage is a double-edged sword.

Without proper risk management, this high degree of leverage can lead to large

losses as well as gains.

• High Liquidity.

Because the Forex Market is so enormous, it is also extremely liquid. This means

that under normal market conditions, with a click of a mouse you can

instantaneously buy and sell at will. You are never "stuck" in a trade. You can even

set your online trading platform to automatically close your position at your

desired profit level (a limit order), and/or close a trade if a trade is going against

you (a stop loss order).

• Free “Demo” Accounts, News, Charts, and Analysis. Most online Forex brokers

offer 'demo' accounts to practice trading, along with breaking Forex news and

charting services. All free! These are very valuable resources for “poor” and SMART

traders who would like to hone their trading skills with 'play' money before

opening a live trading account and risking real money.

• “Mini” and “Micro” Trading:

You would think that getting started as a currency trader would cost a ton of

money. The fact is, compared to trading stocks, options or futures, it doesn't.

Online Forex brokers offer "mini" and “micro” trading accounts, some with a

minimum account deposit of $300 or less. Now we're not saying you should open

an account with the bare minimum but it does makes Forex much more accessible

to the average (poorer) individual who doesn't have a lot of start-up trading

capital. Open a live account here:

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