Market Software : Understanding forex Trade Sizes

Posted on December 17, 2009
Filed Under Day Online Trading, Forex | Leave a Comment

When it comes to the currency market, the actual sizes of the trades that are going on can actually be quite confusing. Not only is there a bit of lingo you need to learn, but you’re also going to be dealing with figures that you could be unfamiliar with.

To start familiarizing yourself with the sizes of trades within the forex market, the first kind of figure that you need to be conscious of is the exchange rate. Where you may be used to exchange rates that are only 2 decimal places long, i.e. 1.42, you will find that when it comes to forex, they are 4 decimal places long, i.e. 1.4267.

The tiniest decimal place, i.e. $0.0001, is commonly known as a pip or point. Both are really short for ‘Price Interest Points’.

So if you’ve heard people talking about how a currency increased by ‘10 pips’, that just means that it increased by $0.0010. Of course, in the forex market lots of the trades that go on are pretty big in size, and so for an investment of $100,000, a single pip’s worth of change is worth $10. Therefore an increase of 10 pips would be a profit of $100!

Mind you, this pip price 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 Dollar, except for other currencies it may differ dependent on how the currency is traded.

Overtly, you’re not going to be ready to remember the pip value for each world currency ( unless you are massively experienced, or have a fantastic memory ). In all truth, you actually do not need to though.

Knowing the jargon and appreciating foreign exchange trade sizes is helpful, just because it will allow you to wrap your head round the trades that are going on, and you are undertaking for yourself.

For the common currencies, you will even find that as you get to grips with the foreign exchange market, you unavoidably finish up remembering their pip values.

On the other hand, for other currencies you could just look them up on an as-needed basis.

What you need to understand most though is that the pip price of assorted currencies will perform a part 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 cost of $10 per lot, or $1 per mini lot.

basically, this suggests that you’d be trading in heaps of $100,000 or $10,000.

Identifying rules like that will help you to ascertain what you can invest and where you can invest it. After that, it’s all just a question of picking what you’re feeling will be profit-making, based totally on the options that you have available.

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