GBP Archives - The Forex Trends

Pips and calculation of pips

localusr — Sun, 02 Jul 2023 16:49:49 +0000

In Forex trading pips are the smallest unit of measurement and are used to measure the change in price between two currencies. The “pip” stands for “price interest point.” It is a standardized unit of measurement that represents the smallest price movement in the exchange rate of a currency pair. Pips are used to calculate profits or losses in Forex trading.

In most currency pairs, a pip is represented by the fourth decimal place, except for the Japanese yen (JPY) pairs, where it is represented by the second decimal place. For instance, if the GBP/USD currency pair moves from 1.2301 to 1.2306, it has moved 5 pips. And in the context of the JPY pair if the USD/JPY moves from 143.70 to 143.75 it has moved 5 pips. The fifth decimal place is known as pipet and it is generally not considered for calculation.

To calculate the monetary value of a pip, you need to consider the lot size of the trade. Lot sizes can vary according to you. You will learn about Lot size right next.

It’s important to note that different Forex brokers may have variations in how they calculate pip values, so it’s always advisable to check with your specific broker or trading platform to ensure accuracy in your calculations.

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What is Spreads

localusr — Sun, 02 Jul 2023 16:41:42 +0000

Understanding spreads is essential for traders as it directly impacts their profitability. Lower spreads can enhance trading performance.

Spreads in currency pairs refer to the difference between the bid price and the ask price of a currency pair in the Forex market. The spread is typically quoted in pips (You will learn about pips right next). It is essentially the cost that traders incur when executing a trade. The spread exists because Forex brokers need to make a profit, and it serves as their compensation for facilitating trades.

As your know Currency pairs are quoted in two prices: the bid price and the ask price. The bid price is lower than the ask price, and the difference between them is the spread. For instance, if the bid price for the GBP/USD currency pair is 1.3089 and the asking price is 1.3091, the spread would be 2 pips.

Spreads can be categorized into two types: fixed spreads and variable spreads. Fixed spreads remain constant regardless of market conditions. On the other hand, variable spreads fluctuate depending on market volatility and liquidity. Variable spreads tend to widen during periods of high market volatility or low liquidity.

The post What is Spreads appeared first on The Forex Trends.

Currency pairs

localusr — Sun, 02 Jul 2023 16:30:49 +0000

A currency pair is a quotation of the relative value of one currency unit against another currency unit in the foreign exchange market (Forex). It represents the exchange rate between two currencies and is used to facilitate currency trading. Currencies are always traded in pairs when we trade in Forex. The first currency of the pair is known as the base currency. While the second currency is known as the quote currency.

For Example: In the GBP/USD currency pair the GBP (Great Britain Pound) is the base currency and USD(US Dollar) is the Quote Currency

The exchange rate indicates how much of the quoted currency is required to buy one unit of the base currency. They provide opportunities for buying or selling one currency in exchange for another with the expectation of profiting from changes in their relative values.

For Example, If the exchange rate of GBP/USD is 1.2736, it means that 1 pound (GBP) can be exchanged for 1.2736 US dollars (USD).

The post Currency pairs appeared first on The Forex Trends.