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Pip Definition | Forex Glossary by hozenesipew.web.fc2.com

Knowing and understanding the proper terminology within the forex market is essential in becoming a successful trader. In this article we discuss and define what pips, lots, margin and leverage are. We also provide examples of each for easier comprehension.

Currency traders quote the value of a currency pair, and trade sizes, in pips and lots. A pip is usually the smallest amount by which the value of a currency pair can change, although these days some brokers offer fractional pip quotes too.

An important guideline for the beginning trader is to measure success or loss in an account by pips instead of the actual dollar value.

The smallest size in currency trading for professional traders is called a lot. For USD-based pairs, the lot size is , In other words, when you enter a trade with your margin account, the smallest amount that you can buy or sell is K, regardless of the size of your margin.

Another important concept in currency trading is the twin phenomenon of margin and leverage. This is a concept that carries a high degree of risk, but since forex prices move very slowly in terms of the actual change in value , the vast majority of traders leverage their accounts when engaging in short-term trading.

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When you open a forex account, the broker will request that you deposit a small sum, known as margin, as insurance against the losses that your account may suffer. The lots that you can trade are borrowed from your broker, who requires a margin deposit as an insurance against losses. The ratio between the funds borrowed by you, and the margin that you deposit as insurance is called leverage. Thus, if you set a leverage ratio of Note that leverage over In order to understand how to manage your account you must gain a good understanding of leverage.

How to Calculate Pips and Spreads | Learn Centre | hozenesipew.web.fc2.com

Failure to pay proper attention to leverage and margin may result in a margin call and the broker may liquidate your position in order to ensure that your losses do not reach a level where your margin deposit is insufficient to cover them. Your invested capital is at significant risk. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors.

The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. No information or opinion contained on this site should be taken as a solicitation or offer to buy or sell any currency, equity or other financial instruments or services.

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