Forex Trading Basics
The global foreign exchange market is the biggest market in the world. The 3.2 trillion USD daily turnover dwarfs the combined turnover of all the world's stock and bond markets.
There are many reasons for the popularity of foreign exchange trading, but among the most important are the leverage available, the high liquidity 24 hours a day and the very low dealing costs associated with trading.
There are many reasons for the popularity of foreign exchange trading, but among the most important are the leverage available, the high liquidity 24 hours a day and the very low dealing costs associated with trading.
How to calculate the point (pip) price.
All currency pairs can be subdivided into three logical groups - pairs with direct quote (EURUSD, GBPUSD), pairs with inverse quote (USDJPY, USDCHF), and cross rates (GBPCHF, EURJPY etc.).
1. The pip price for currency pairs with direct quote is calculated according to the following formula:
[pip] = [lot size] × [tick size]
where [tick size] - is the smallest possible change in price, for example for USDCHF and EURUSD it's 0.0001. For currency pairs with direct quote the pip price is constant.
Example.
EURUSD. Lot size is 100,000, tick - 0.0001. [pip] = 100000 * 0.0001 = $10.00
2. For currency pairs with inverse quote:
[pip] = [lot size] × [tick size] / [current quote]
For currency pairs with inverse quote the pip price varies depending on the current quote.
Example.
USDJPY. Lot size is 100,000, tick - 0.01. If current quote is 129.20, [pip] = 100000 * 0.01 / 129.20 = $7.74
3. For cross rates:
[pip] = [lot size] × [tick size] × [base quote] / [current quote]
where [base quote] - the current base pair quote.
Example.
GBPCHF. The lot size is J62500; if the current quote is 2.3000 and the base GBPUSD quote is 1.4550, [pip] = 62500 * 0.0001 * 1.4550 / 2.3000 = $3.95.
1. The pip price for currency pairs with direct quote is calculated according to the following formula:
[pip] = [lot size] × [tick size]
where [tick size] - is the smallest possible change in price, for example for USDCHF and EURUSD it's 0.0001. For currency pairs with direct quote the pip price is constant.
Example.
EURUSD. Lot size is 100,000, tick - 0.0001. [pip] = 100000 * 0.0001 = $10.00
2. For currency pairs with inverse quote:
[pip] = [lot size] × [tick size] / [current quote]
For currency pairs with inverse quote the pip price varies depending on the current quote.
Example.
USDJPY. Lot size is 100,000, tick - 0.01. If current quote is 129.20, [pip] = 100000 * 0.01 / 129.20 = $7.74
3. For cross rates:
[pip] = [lot size] × [tick size] × [base quote] / [current quote]
where [base quote] - the current base pair quote.
Example.
GBPCHF. The lot size is J62500; if the current quote is 2.3000 and the base GBPUSD quote is 1.4550, [pip] = 62500 * 0.0001 * 1.4550 / 2.3000 = $3.95.