What is a pip in the forex market
As a result profit will equal to maximal spread value. This trading strategy under variable spread conditions has an advantages of low risks involved, because profit probability does not depends in this case on actual currency pair quotation but only on spread value.
More over if the trading position is open during minimal spread it guarantees breakeven result and makes profit earning highly possible. There are several factors that influence the size of the bid-offer spread.
The most important is currency liquidity. Popular currency pairs are traded with lowest spreads while rare pairs raise dozen pips spread. Next factor is amount of a deal. Middle size spot deals are executed on quotations with standard tight spreads; extreme deals — both too small and too big — are quoted with broader spreads due to risks involved.
On volatile market bid-offer spreads are wider than during quiet market conditions. Status of a customer also impact spread as large scale traders or premium clients enjoy personal discounts. Nowadays Forex market characterizes high competition and as brokers are trying to stay closer to customers, spreads tends to be fixed on lowest possible level. Each trader should pay sufficient attention to spread management.
Maximum performance can only be achieved when maximum quantity of market conditions is taken into account. Successful trading strategy is based on effective evaluation of market indicators and specific financial conditions of a deal. Because spreads are subject to change, spread management strategy should also be flexible enough to adjust to market movement.
As a newcomer to the Forex market, there are several terms used that you may require a definition for. Both these terms are also a very important attribute of the Forex market as both represent the value of a currency pair to the trader and the broker. In the Forex market, the value of a currency is presented in pips. If you enter a short position at 1. Remember, short means you want the rate to go down.
So, if you short at 1. Below are a few more examples of trades. You may have noticed that in all the examples above, the pip is either in the fourth or second decimal place. The fourth and second decimal place are the standard in Forex. Virtually every pair you trade will have the pip as either the fourth or second decimal.
The value of a pip changes depending on the pair you trade. Calculating the value of a pip is not vital to your success, as a trader, since your broker will automatically calculate the value for you. So, if you enter long at 1. Clearly, this is not much money. You will learn about leverage later. In the next two examples, because the base currency is not USD, using the same equation as above we get the value of a pip in the base currency.
On any pair, with USD as the quote currency, to get the pip value in USD you simply multiply the pip value by the exchange rate:.