Market Software : Understanding currency exchange Trade Sizes

When it comes to the currency market, the particular sizes of the trades that are going on can essentially be quite confusing.  Not only is there a little of language that you need to learn, but you’re also going to be dealing with figures that you might be unfamiliar with. 

To start familiarizing yourself with the sizes of trades in the currency market, the first type of figure that you need to be conscious of is the exchange rate.  Where you might be used to exchange rates that are just two decimal places long, i.e.  1.42, you will find that when it comes to forex, they’re four decimal places long, i.e.  1.4267. 

The tiniest decimal place, i.e.  $0.0001, is sometimes known as a pip or point.  Both are truly short for ‘Price Interest Points’. 

So if you have heard people talking about how a currency increased by ’10 pips’, that just implies it increased by $0.0010.  Naturally, in the forex market plenty of the trades that go on are pretty large in size, and so for an investment of $100,000, a single pip’s worth of change is worth $10.  So an increase of ten pips would be a profit of $100! 

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

Overtly, you’re not going to be ready to remember the pip worth for every world currency ( unless you actually are massively experienced, or have a fantastic memory ).  In all honesty, you actually don’t have to though. 

Knowing the lingo and appreciating foreign exchange trade sizes is useful, just because it will enable you to wrap your head around the trades that are going on, and you are undertaking for yourself. 

For the common currencies, you will even find that as you become familiar with the currency market, you unavoidably end up remembering their pip values. 

On the other hand, for other currencies you could just look them up on an as-needed basis. 

What you need to appreciate most though is that the pip price of assorted currencies will perform a part in the ‘lots’ that you can purchase.  As an example, a currency pair with USD as the second currency ( i.e.  The one being traded into ) always has a pip price of $10 per lot, or $1 per mini lot. 

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

Identifying rules like that will help you to figure out what you can invest and where you can invest it.  After that, it’s all just a question of picking what you’re feeling will be profitable, based on the options that you have available.

 

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