Getting Familiar With Pip In FX Trading
The pip in FX trading is the smallest change in price made by the currency exchange rate. Since the maximum number of currency pairs are traded up to four decimal places, the pip in FX trading online is that of the last decimal point and in most cases and is equal to 0.0001 part of currency, or one basis point. In other words, pip in FX trading is actually an abbreviation for the price in points. Generally, it fluctuates every second and as a result pf which the forex traders get a chance to make money at the pip moment by buying the currency and selling it. It is important to note that the value of pip in FX trading needs to be lesser when buying currencies and higher in case currencies are being sold.
Let us consider an example here which will help us in understanding the concept of pip in online FX trading more clearly. The least possible move which can be made by the USD/CAD currency pair is one base point which is equal to $0.0001. However, it is also true that the smallest move in a forex currency trading need not always be equal to one basis point, however it is the case most currency pairs most of the times. The forex currency trading mechanism is such that if you buy one currency then, you must sell another currency. This way, the currency prices get quoted in pairs. The most active currency pair which is traded most in the foreign exchange currency market is the USD/EUR pair. Therefore, the greater the activity of a currency pair in the market, the lesser is the difference between the bid/ask price. There are instances when the active currency pair possesses a possible spread of just 2 forex pips.
There is an important point to note here- the difference between stock market and the forex trading is that there are no broker fees to pay in forex trading. Hence, as a buyer, the spread pip in forex trading is important to consider. When you have bought a currency, you should accept the immediate loss. The value of the currency which is being bought by you must rise until the extent of the pip spread before you break even and the currency value rise again in order to make a profit. In theory, the lesser the value of pip spread, the easier it is to make a profit and vice versa. However, it should be kept in mind that the pip spread does not guarantee that the forex market fluctuates constantly.