There are some concepts that you need to know when trading in Forex. these concepts seems small and unimportant to you but actually it's very important.
You don't need to just know these concepts but you should understand them as well like:
- Pip
- Pipette
- Lot
What the pip is ?
The pip is a unit of measurement to show the difference between two currencies.
If EUR/USD moved from 1.4356 to 1.4357 so this 0.0001 is one pip. this means that the pip is usually the fourth decimal place of price quote.
What the pipette is ?
- Fractional pips are called pipettes.
- Is equal to a tenth of a pip.
For example, if USD/GBP moved from 1.46757 to 1.46758 so this 0.00001 is called a pipette.
Here is how fractional pips "pipettes" look like in a trading platform
Do you know how to read pips and it's values??
How to Make Money with Forex?
How to calculate the value of a pip ?
Value of a pip is different in every currency pair as each pair has their own relative value.
Example:
- Lets take USD/CAD = 1.0200
- Pip value in terms of base currency = the value change in counter currency*the exchange rate ratio
- Pip = (0.0001 CAD)*(1 USD / 1.0200 CAD) = 0.000098 USD per unit traded
What is a Lot in Forex ?
In the past, Forex was only in specific amounts called lots which are the number of currency units you will buy or sell.
Standard size for a lot is 100,000 units but there are another types of lots:
- Standard
- Mini
- Micro
- Nano
Some people show quantities in lots and others show it in units but no problem for you now in dealing with any of them.
To take advantage in the pip's minute change rates"values" you need to trade with large amounts of specified currency to find a touchable profit or loss.
Let's assume we will use Mini lot size (10.000) and we choose to trade in USD/CHF with exchange rate of 1.4555
This will give us = (0.0001 / 1.4555)*10,000 = 0.69 $/pip.
Here are some examples of pip value for USD/JPY and EUR/USD with the four types of lot sizes:
