Forex pips indicators have a major speculative role to play in the foreign exchange market. They refer to the minute increments of a given currency. PIP is an acronym for “percentage in point” and Forex rates are expressed up to 4 pips or 4 decimal places. In Forex trading, they represent the smallest changes in the currency value. Even a small change in a pip can have a heavy effect on the final value of a particular currency upon its purchase or sale.
Foreign exchange trading involves various currencies with thousand dollar values, and the slightest movements in the pip value, whether up or down, can mean big trading gains or losses. This is how crucial the role that pips have in the determination of the cost of a particular trade. When a currency buyer quotes a bid and the seller asks for the desired price, the spread between the two is minimal.
For currency wholesalers, the spread is usually 1 to 2 pips. Brokers, however, will note this up to anywhere from 3 to 20 pips. The amount noted by the spread will be retained by the dealers as their fees as they do not charge any commissions for their services. The job of the dealers is to try to predict market movements. If they speculate right and the spread is exceeded by the price fluctuations, a profit will be made.
Before getting into actual trading in the market, neophytes are advised to learn the basics first such as what the Forex markets are, opening up an account with a broker, chart reading, using the forex pips indicators, and understanding the various chart patterns. You can get a lot of information online including how to design your own trading system and how to test it. It is important for a beginner to get an idea on which currencies to buy or sell, when to trade them, and what signals to use.
A pip can be simply stated as 1/10,000th of the prevailing exchange rate, and the pip value of a basic currency must be defined. It is basically how much the pip is worth. To compute for the pip value, multiply 1/10,000th of the exchange rate by the lot size. The pip is the 4th decimal place in the exchange rate quoted. The pip will vary if a different currency pair is quoted. The importance of pips lies not so much in the accurate and proper measurements of dollars and cents but rather in indicating the rise and fall of the foreign exchange values.
When involved in a particular currency trade, the Forex trader must try to determine the worth of the interest point of the price by monitoring and noting how much money is gained or lost for each price interest point that is gained or lost. As an investor, it is important that you are able to check the price movements in the market. It can be achieved by understanding how Forex pips indicators work, and being able to calculate the value on a particular currency.
Source by James T Taylor