21st Dec 2009
Stock market Software : Understanding foreign exchange Trade Sizes
When it comes to the forex market, the sizes of the trades that are going on can basically be quite confusing. Not only is there a bit of lingo that you need to learn, but you’re also going to be working with figures that you may be unfamiliar with.
To start familiarizing yourself with the sizes of trades in the forex market, the 1st type of figure you need to be conscious of is the exchange rate. Where you may be used to exchange rates that are just two decimal places long, i.e. 1.42, you’ll find that when it comes to foreign exchange, they’re 4 decimal places long, i.e. 1.4267.
The littlest decimal place, i.e. $0.0001, is sometimes known as a pip or point. Both are truly short for ‘Price Interest Points’.
So if you’ve heard people talking about how a currency increased by ‘10 pips’, that just suggests that it increased by $0.0010. Naturally, in the currency market lots 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. So an increase of 10 pips would be a profit of $100!
Mind you, this pip price that we have been deliberating does vary from currency to currency. In the examples above, we’ve been talking about how it applies to the US Dollar, but for other currencies it may differ dependent on how the currency is traded.
Overtly, you’re not going to be able to remember the pip price for each world currency ( unless you actually are immensely experienced, or have an incredible memory ). In all truth, you actually don’t have to though.
Knowing the jargon and appreciating foreign exchange trade sizes is useful, just because it will permit you to wrap your head around the trades that are going on, and you are undertaking for yourself.
For the common currencies, you’ll even find that as you become familiar with the foreign exchange market, you inevitably finish up remembering their pip values.
On the other hand, for other currencies you might just look them up on an as-needed basis.
What you want to appreciate most though is that the pip price of assorted currencies will perform a part in the ‘lots’ that you can purchase. For example, a currency pair with dollars 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 means that you’d be trading in tons of $100,000 or $10,000.
Identifying rules such as 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’re feeling will be profit-making, based on the options that you have available.
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