forex trading course (part 4)

and show you how their values are calculated.Take your time with this information, as it is required knowledge for all forex traders.

Don’t even think about trading until you are comfortable with pip values and calculating profit and loss.

What the heck is a Pip? What about a Pipette?The unit of measurement to express the change in value between two currencies is called a “pip.”

If EUR/USD moves from 1.2250 to 1.2251, that .0001 USD rise in value is ONE PIP. A pip is usually the last decimal place of a quotation. Most pairs go out to 4 decimal place

s, but there are some exceptions like Japanese Yen pairs (they go out to two decimal places). forex trading in the world.

Very Important: There are brokers that quote currency pairs beyond the standard “4 and 2″ decimal places to “5 and 3″ decimal places.

They are quoting FRACTIONAL PIPS, also called “pipettes.” For instance, if GBP/USD moves from 1.51542 to 1.51543, that .00001 USD move higher is ONE PIPETTE.

As each currency has its own relative value, it’s necessary to calculate the value of a pip for that particular currency pair.

In the following example, we will use a quote with 4 decimal places. For the purpose of better explaining the calculations, exchange rates will be expressed as a ratio

Using this example, if we traded 10,000 units of USD/CAD, then a one pip change to the exchange rate would be approximately.

a 0.98 USD change in the position value (10,000 units x 0.0000984 USD/unit). (We use “approximately” because as the exchange rate changes,

so does the value of each pip move)Here’s another example using a currency pair with the Japanese Yen as the counter currencyNotice that this currency pair only goes to two decimal places to measure a

1 pip change in value (most of the other currencies have four decimal places). In this case, a one pip move would be .01 JPY.

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