Stock market Software : Understanding currency exchange Trade Sizes
When it comes to the foreign exchange market, the sizes of the trades that are going on can basically be quite confusing. Not only is there a bit of jargon you need to learn, but you are also going to be dealing with figures that you may be unfamiliar with.
To start familiarizing yourself with the sizes of trades within the foreign exchange market, the first kind of figure you need to be conscious of is the exchange rate. Where you might be used to exchange rates that are just two decimal places long, i.e. 1.42, you will find that when it comes to currency exchange, they are four decimal places long, i.e. 1.4267.
The smallest decimal place, i.e. $0.0001, is commonly known as a pip or point. Both are actually short for ‘Price Interest Points’.
So if you have heard people talking about how a currency increased by ’10 pips’, that just means that it increased by $0.0010. Naturally, in the forex market a lot of the trades that go on are fairly large in size, and so for an investment of $100,000, a single pip’s worth of change is worth $10. Thus an increase of 10 pips would be a profit of $100!
Mind you, this pip worth that we have been debating does vary from currency to currency. In the examples above, we’ve been talking about how it applies to the US greenback, except for other currencies it may differ depending on how the currency is traded.
Frankly, you’re not going to be ready to remember the pip worth for each world currency ( unless you are massively experienced, or have an amazing memory ). In all truth, you really don’t have to though.
Knowing the language and appreciating foreign exchange trade sizes is helpful, simply because it will enable you to wrap your head round the trades that are going on, and you are undertaking for yourself.
For the common currencies, you may even find that as you get to grips with the forex market, you necessarily end up recalling their pip values.
On the other hand, for other currencies you could just look them up on an as-needed basis.
What you want to appreciate most though is that the pip cost of diverse currencies will play a role in the ‘lots’ that you can purchase. As an example, a currency pair with $ as the second currency ( i.e. The one being traded into ) always has a pip value of $10 per lot, or $1 per mini lot.
essentially, this means that you’d be trading in lots of $100,000 or $10,000.
Identifying rules like that will help you to figure out what you can invest and where you can invest it. After that, it’s all just an issue of picking what you feel will be worthwhile, based on the options that you have available.
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