Pip in Forex
A pip is a short for percentage in point or price interest point. Also it is the smallest numerical price move in the FOREX market. A price changes on the FX referred to as a Pip/s or Pipette change.
There are currency pairs priced to 4 decimals places ($0.0001) the smallest change would be to the last number after the decimal point for this sample.
The difference between a pip and pipette is simply a 5 decimal place and not 4 such as a pip. A pip is equivalent mostly to 0.01% or 1/100th of one percent.
Calculating pip value
This can be calculated very simply: Positions size x 0.0001 = Monetary value of a pip.
Here is an example using the EUR/USD:
Positions size is amount of lots or mini-lots.
Our position size, for example is 10,000 units and calculate the pip value as follows: 10,000 (units) x 0.0001 (one pip) = $1 per pip.
When you open a BUY position and the market goes in your side every pip movement will earn you $1.00 and the visa versa for SELL position. If the market is going against your, a $1.00 will be lost per pip movement should the trend be against you. The more amount of units the more effect will have on the pip value.
Leverage Trading in Forex
Leverage trading, also means margin trading allows traders to open positions larger than their own capital money on trading deposit.
The trader needs only to invest a certain percentage of the position and brokers multiply amount adding much more addition capital. Leverage trading is popular amongst traders and brokers.
“Leverage” usually refers to the ratio between the position value and the investment requireed, and “Margin” is the percentage of the position required.
Instead of paying the full price for trading instrument (currency or other), the trader can pay only a small portion of it, for example – if a position’s value at the time of opening is $1,000;
instead of paying the full amount, trader can apply a leverage of 100:1 – meaning for every $100 in actual value he will be requested to invest $1 of his own capital and broker adds another 99$.
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