What is the importance of pips in Forex?


What is the importance of pips in Forex?

When we are trading in the Forex market, it is very difficult to underestimate the importance of the presence of points. Where the point, which is a percentage of the number of points or an expression point for an interest rate, represents an important and fundamental movement that can reflect the performance of currencies in the Forex market.

For the majority of currency pairs including, the British pound against the United States currency, the dollar, Forex.

In the sense of the British pound against the US dollar, we find that one point expresses 1/100 of a percentage, or one base point, and the number of points in the four positions is calculated after the decimal point in the currency quote.

As for trading currencies in Forex, from different currencies of different and diverse countries, one Forex point is that point of one percentage, and that second point that comes after after the decimal point is calculated in the process of each special quotation is the result.

Transactions must be exchanged in order to facilitate trade and most international trading business. The Forex market is where such moves occur, along with special bets made by a speculator who hopes to make money from a particular price movement in a particular currency pair. 

Where the points are used in a special process to calculate the price paid by the participant in the Forex market when executing a single currency trade.


Important and main points about the points

Pips in Forex are used to express the percentage by the number of pip to calculate the rate that a trader will pay in the Forex trading market.

Its value depends on the specific lot size that an individual trades.

What determines the value of the points is the Forex currency used in the account opening process.

It is the Forex broker who collects the difference in points between the prices charged by the seller and the prices paid by the buyer trader.


What are Forex pips, pipettes, and spreads?

The difference in the value of an individual’s trading points is always dependent on the size of a particular Forex lot when trading operations. It is known that a standard Forex lot is an average of 100,000 units of currency units, and a mini Forex contract is expresses the value of 10,000 units of one.

The difference in Forex points between the offer price of the deal in Forex, which is a specific price charged by the seller of the deal, and the request price of the deal, which is the price paid by the buyer of the deal, and it is called the spread.

Spread is the basis for an effective method of profiting a particular brokerage deal with a particular Forex broker for the money, because the Forex broker does not collect a special commission on a particular individual trade. 

When a trader buys a position at the ask price and the trader sells at the bid price, the Forex broker keeps a certain pips difference which is his profit.

Many Forex brokers have a special quote for currencies of one or more decimal places after that point. These pips sections are called pipettes as they allow for great flexibility in Forex market pricing and special spreads.


Forex pip values ​​for other Forex account currencies

For an account denominated in EUR, the value of 1 pip will be 10 for a standard Forex contract, 1 EUR for a Forex mini lot, and 0.10 EUR for another Forex lot will be small and when the EUR position is the position of the second currency. 

For a currency pair where the Euro is not the quote currency for the transaction, the trader can divide the share of the usual Forex pip value by the value of a given exchange rate between Euro and another quote currency.


Forex point movement in trades

A trader is trading EUR/GBP, the bid price of a deal is 0.8780 and the ask price of a deal is 0.7885. He should expect the EUR/GBP to rise, so he will buy a standard Forex lot of EUR at a bargain ask price of 0.8784.

Later on during the Forex trading day, the bid price for a position is 0.8592 and the bid price for a position is 0.7895. The trader is selling at the bid price of 0.8592. He has won 8 points. If his account was funded with the pound currency, he won 80 pounds on this business transaction.


What is the importance of knowing the trader’s calculation of the pip value in Forex?

Since every Forex currency has its own value that is completely relative and specific to it, it is very important and necessary to realize the value of a Forex pip for the currency pair that a trader uses and is determined in his trades.

A real example of how Forex pips work

A combination of special and excessive inflation and a depreciation of a currency can lead to a price push in an exchange to a point where things become unmanageable and the transaction becomes unmanageable. In addition to the effect on the consumer who always has to carry a large amount of his money without understanding, this also makes the trading process unmanageable as a transaction and here loses a good concept of the point its meaning.

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