by To answer the question, “What are PIPS?”
Trading currencies use the point in price (pip) system. It’s important to note that different currency combinations have different “pip” values.
A FOREX price quote will often look like this1.2213 US dollars to 1 Euro 2.2209 Swiss francs Explanation:
For most currency pairs, the US dollar serves as the “base” currency because it is the most actively traded currency on the Foreign Exchange market. Among the “Majors” are the USD/JPY, USD/CHF, and USD/CAD pairs. One U.S. dollar is equivalent to two units of the second currency indicated when pricing items in this and other currencies.To illustrate, if the USD/CHF exchange rate is 1.30, it means that one U.S. dollar will buy 1.30 Swiss francs at the moment.When the quote value rises in terms of the U.S. dollar as the reference currency, the dollar has strengthened against the other currency. If one U.S. dollar now buys 1.3050 Swiss francs instead of 1.2975, the dollar has strengthened.This pattern is true for all currencies save from the pound, the Australian dollar, and the euro (EUR). According to the current exchange rate between the Euro and the US Dollar, one Euro can be exchanged for $1.2080.Because it now takes more Euros, British pounds, or Australian dollars to purchase one US dollar, a rising quote in any of these three currency pairs signals a weakening US dollar, as the US dollar is not the base rate.
To restate the meaning, a currency quote that is going up indicates that the value of the underlying currency is going up. The value of the underlying currency declines as the quote falls.Cross currencies, which are pairs of currencies that do not include the U.S. dollar, follow the same concept, nevertheless. One Euro is currently worth about 134.50 Japanese yen, as indicated by the exchange rate of EUR/JPY 134.50.
IN WHAT WAYS DO LONG AND SHORT INVESTING IN THE FOREX MARKET WORK BEST?
In particular, keep in mind the following two rules:
1. of trading is to bail out of bad deals and ride out the good ones.
It’s possible that some of your trades will turn out poorly. All FOREX traders do this, it’s a known fact. A trader with consistency and discipline will ultimately make more money than they lose.If the charts show that you are going to lose money on a transaction, you should get out of it immediately. Most rookie traders are lowering their stop loss in an effort to “prove they are right” or “hoping that the market would flip.” Almost every single one of these bets ends in utter financial ruin. Most profitable trades are completed on the first try.Remember that astute investors are aware that there are always other choices available. You should try to minimize your losses while maximizing your gains.
2. When trading in foreign exchange, always employ the use of a Stop Loss Order.
In order to limit your exposure to potential losses, it is recommended that you place a STOP order with your ENTRY order on your trading platform at the same time.If you are wrong and the market abruptly reverses course, you should know at what moment (pricing) you would like to get out of the transaction.
For example, a trader in the Foreign Exchange market can profit by either buying (also known as “going long”) or selling (more often known as “going short”) (known as going “short”).
Let’s pretend for a moment that you’ve been studying the Euro. The US dollar is the initial currency pair for the Euro (USD).
hrough the use of your trading rules, strategies, etc., you have forecasted an increase in the Euro’s value over the next two weeks.
Current exchange rate for Euro = US Dollar You open the cutting-edge trading station software that Fenix Capital Management, LLC www.fenixcapitalmanagement.com provided at no charge to you, and you notice that it displays:
Euro/Dollar rates often fluctuate between 1.2010 and 1.2013.
One takes a “buy” position in the market to speculate on an increase in the value of the EUR/USD.
Pretend for a moment that you bought one lot of EUR/USD at the rate of 1.2013. To make a profit, you must first purchase a pair at a discount and then sell them for more money.
Consider the usual FX SELL trade with the USD/JPY currency pair:
When trading FX, remember that “going short” involves selling the base currency and buying the quote currency. You should sell the currency pair if you believe the quote currency’s value (in this case, JPY) will increase relative to the base currency (in this case, the USD) (USD).
How do I calculate my potential gain or loss?
The Profit Calculations in the Short-sell Trade Scenario below may seem difficult if you’re not familiar with the FOREX market; nonetheless, your broker trade station automatically calculates this method in real time (software). In what follows, I lay out the steps involved in this process so that you may VISUALIZE the potential for PROFIT.
• Here is the proposed exchange: You exchange 1 lot of US Dollars ($100,000) for 1 lot of Japanese Yen (10,754.00YEN). (Remember that if you had a margin of 0.25%, your initial margin deposit for this trade would be $250.)
• As expected, the value of the US dollar has fallen against the Japanese yen to the point where one US dollar can now be bought or sold for exactly 106.50 yen.
• At today’s exchange rate between the US Dollar and the Japanese Yen, one hundred thousand dollars will buy you 10,654,000 yen. Considering that you initially invested 10,754,000 JPY, your return on investment is 100,000 JPY, or 10%.
• Divide 100,000 by the current exchange rate of 100,000 Japanese Yen for one United States Dollar (currently $106.54) to get your profit or loss in USD.Total Gain = $938.61 US Dollars
