A Simple Strategy For Forex 10 Pips a Day
What is a pip and what role does it play in the forex market? In forex trading, a pip is the unit of measurement for the smallest change in the price of a currency or currency pair. Generally speaking, as to certain major currency pairs such as the EUR/USD (Euro/U.S.Dollar), if a trader commits one standard lot (equal to 100,000 units of the currency traded) to the trade, a movement of one pip in the trader’s favor will yield a profit of $10.
The currencies of the world are on a floating exchange rate and are always traded in pairs. It is important to understand that trading currencies is a very risky form of investing, and any funds used when speculating on the values of currency prices should be considered risk capital. Scalp trading with an automated forex trading system has both it’s advantages as well as it’s disadvantages. A PIP, which in financing stands for “percentage in point,” in forex trading is the smallest increment of value change in any currency pair. It is generally the fourth decimal place.
Perhaps the easiest way to understand how to calculate pip values is to start by looking at currency pairs involving the US Dollar. Supposing the rate for GBP/USD is 1.9340. This means that 1 UK Pound is worth 1.9340 US Dollars. Bearing in mind that a standard interbank lot size is 100,000 this means that 100,000 UK Pounds are worth 193,400 US Dollars.
If a broker is offering a spread as low as 1 pip, be cautious. As most of the brokers do not charge a commission, it the spread they use to make their money. In a 1 pip spread, there is very little scope for him to make profit.
