Once you start finding info on FX trading site online, you will immediately spot references to the currency trading pip. Your profits and losses will be determinedin pips. Something else that is considered in pips is the spread, the change between the bid and ask prices which is the major cost of forex and how the brokers generate their cash. There are numerous useless automated forex software on internet. Even if you are using a genuine automated forex system you must understand the meaning of PIP. hence it is clearly very important to grasp what is a forex pip.

The term PIP represents Percentage in Point (or sometimes, price interest point). It is the least increment of changes in currency rates. It allows us to assess a rise or fall in currency values in percentage terms as an alternative of dollars and cents.

Should we talk in Pips? The logic for this is simple. In the forex currency trading market there is no global currency in which to state values. The US $ may be the most commonly traded currency but it is not drawn in in all forex trades. If you are are doing currency trading cross rates, i.e. two additional currencies such as EUR/GBP or any other combination that does not comprise USD, it would not make any sense at all to express your profitsand losses in terms of United States dollars. As a replacement for, we require something that is a small percentage of the value of whatever currencies we are doing the trade with.

This means that the financial worth of a pip differsaccording to the currency.

a good number currencies are quoted to four decimal points. For instance you might find out the bid price for EUR/USD quoted at 1.3641 and ask price 1.3645. The difference (the spread) is 0.0004 or 4 pips. In this casea pip is 0.01% of a lot.

hence if the lot size was USD100,000, one pip would be worth US dollar10. Similarly fora lot size of $10,000, one pip would be USD1.

These figurescan be confusing when you are just starting out. Therefore it is better to start trading consistently with just one currency pair. I suggest you to read the forex pip tutorial to learn more.

Should you trade in one pair consistently each single day you will soon get used to how much a pip means in terms of your actual profits and losses in your account. You will recognize how much one pip is worth in dollars or in your own currency.

But if you are trading quite a few different currency pairs, you have to deal with pips of diverse values. If you get baffled, you could be taking biggerrisks than you planned or closing trades with less profit than you thought. It is much easier to deal with just one pair at first until you have a sound grasp of trading practices and forex pip rates.

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