The Forex Fiesta
The Forex market is one of the most liquid markets in the world. this market is like one big fiesta with many attendees. First you have the Thanoses of the market called the central banks; then the mighty intermediary bankers alongside the hedge funds; all the way down to the deceptively dangerous retail trader like myself. With all of these players in the market there is but one thing that we are all focused on, and it’s a very simple three letter word abbreviation called pip(price in point) .
What Is A Pip?
A pip is the price move in a given exchange. understanding the change in value helps to manage their trading strategy. Traders often use pips to measure gains and losses. a pip measures the amount of change for an exchange rate for a currency pair. Most currencies are priced four decimals excluding jpy.
For currency pairs displayed to 4 decimal places, one pip = 0.0001.
Yen-based currency pairs are displayed to only two decimal places (0.01)
For a trader to say "I made 55 pips on the trade" for instance, means that the trader profited by 55 pips(vice versa for losses).
The monetary value of each pip depends on three factors: the currency pair being traded, the size of the trade, and the exchange rate. Based on these factors the variance of even a single pip can have a huge impact on the value of the open position.
A $175,000 trade involving the AUD/NZD pair is closed at 1.2703 after losing 17 pips. Number of NZD per pip: 175,000 × 0.0001 = 17.5
Per Pip Value: 17.5 ÷1.2703 = 13.78 AUD per pip
Trade Profit / (Loss):(17) pips × 13.78 = (-234.26) Australian Dollars
In conclusion, one of the first things that an individual should learn when it comes to the market is how to measure loss and how to assess price moves . A thorough fundamental knowledge will provide the vehicle and be a strong catalyst to supplying that need. Thanks for taking the time in reading this, and welcome to this fiesta called the Forex market.