Understanding Forex Pips

When trading forex, traders might come across some terms that they may not be familiar with. One of these is pips. Pips, in regards to trading forex refers to the Price Interest Point. Each currency that is traded will have its own current dollar value and this is dependent on whether it is a base currency pair or a cross currency. The price range can vary, usually ranging from $0.50 to $2. These prices will change as the actual value of the currency goes up or down.

To make more profit per pip, traders need to add the number of lots that are being traded. For example, If the value if currently $1 and one lot is traded, the value of the actual trade will go up and down by $1 for each and every pip that is moved. If three lots are traded, the value of the movement is $3.

Many brokers who assist forex traders will have a pip calculator. This allows the numbers and currencies to be entered and it will return the actual dollar value for each pip. The pairs that end in the same cross currency pair will always have the exact same pip value.

Most traders will use the pip to make a trading decision. They will usually have a target pip in mind and will be able to determine when to exit the trade to make the most money possible. For new traders, the pip will play a large role in being successful. To determine the current pip, traders should get the current value of a currency. This will usually be a number followed by four numbers after the decimal. The last digit will represent the pip.