Market Software : Understanding foreign exchange Trade Sizes

When it comes to the foreign exchange market, the actual sizes of the trades that are going on can actually be quite confusing.  Not only is there a little bit of language you need to learn, but you are also going to be dealing with figures that you may be unfamiliar with. 

To start familiarizing yourself with the sizes of trades within the currency market, the first kind of figure that you need to be aware of is the exchange rate.  Where you could be used to exchange rates that are only 2 decimal places long, i.e.  1.42, you’ll find that when it comes to currency exchange, they’re four decimal places long, i.e.  1.4267. 

The smallest decimal place, i.e.  $0.0001, is 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 means that it increased by $0.0010.  Naturally, in the forex market a lot 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.  Thus an increase of 10 pips would be a profit of $100! 

Mind you, this pip worth that we’ve been deliberating does vary from currency to currency.  In the examples above, we’ve been talking about how it relates to the US Dollar, except for other currencies it may differ dependent on how the currency is traded. 

Overtly, you are not going to be able to remember the pip value for each world currency ( unless you are immensely experienced, or have a fantastic memory ).  In all honesty, you actually do not need to though. 

Knowing the language and appreciating foreign exchange trade sizes is useful, simply because it will permit you to wrap your head round the trades that are going on, and that you are undertaking for yourself. 

For the common currencies, you will even find that as you familiarize yourself with the currency market, you inevitably end up recalling 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 cost of assorted currencies will perform a part in the ‘lots’ that you can purchase.  For instance, a currency pair with $ as the second currency ( i.e.  The one being traded into ) always has a pip value of $10 per lot, or $1 per mini lot. 

essentially, this implies that you’d be trading in tons of $100,000 or $10,000. 

Identifying rules such as that will help you to determine 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 totally on the options that you have available.

 

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