Online Forex Trading
THIS IS HOW ONLINE FOREX TRADING MOVES ARE MEASURED
Online Forex trading, like anything new, is confusing yet simple. If a online Forex trading quote for the EURUSD is 1.23, it simply means that 1 Euro is equal to 1.23 U.S. Dollars. A online Forex trading quote for the USDJPY at 109.50 simple means that 1 U.S. Dollar is equal to 109.50 Japanese Yen.
In online Forex trading example 1, if you 'hit the bid/ you will sell US$1 and but 109.50 Yen.
If you want to buy Dollars and sell Yen, you will 'lift the offer' and pay 109.55 Yen for US$1
In online Forex trading example 2, if you sell 1 Euro, you will but US$1.2845.
If you want to buy Euros and sell dollars, you will pay Euro 1.2818 for US$1
Online Forex trading markets move in what are called "pips." A pip (price interest point) is the smallest unit of price for any foreign currency in online Forex trading.
- Online Forex trading: EUR/USD trading from 1.2300 to 1.2301 = a gain of 1 pip
- Online Forex trading: USD/JPY trading from 108.01 to 108.09 = a gain of 8 pip
- Online Forex trading: GBP/USD trading from 1.8302 to 1.8311 = a gain of 9 pips
- Online Forex trading: EUR/USD trading from 1.2300 to 1.2401 = a gain of 101 pips
A full one cent move in the currency is equal to 100 pips.
CALCULATING PIP VALUES
First, we'll start with the complicated way of how pip values are calculated in online Forex trading, which is as follows:
- (One pip, including decimal point / current exchange rate) x (Notional Amount)
- For the EUR/USD this translates into:
- (.0001/1.2935) x (E 100,000) = Euro 7.73096
- But, we want the pip value in US Dollars, not Euro, so we go one step further:
- 7.73096 x current exchange rate (1.2930) = $10.00 per pip.
What this boils down to is this--any online Forex trading contract that ends in USD is worth $10.00 per pip, or $1,000 for a full one cent move (100 pips). The Euro, for example, moves in a range of 80 to 150 pips per day. This $10.00 per pip calculation would include the Euro (EUR/USD), Pound (GBP/USD), etc. These are the contracts most people trade. It gets a little trickier when this is not the case. For example, on March 29, 2005, a USD/JPY contract and any additional contracts that end in JPY is going to be worth $9.35 per pip. On this same day, any online Forex trading contract that ends in CHF is going to be $8.29 per pip. The EUR/GBP is going to be $18.70 per pip, and so on, based on the various exchange rates. Again, most online Forex traders seem to focus on currencies that end in USD, so the $10.00 per pip has become a universal number when talking about online Forex trading. There is also a mini version of these contracts where each pip is worth $1.00.
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