Currency Pairs Are Abbreviated

Category: Finance, Currency Trading.

Typically, in the FOREX market, currencies are traded in pairs. Whenever you trade currencies online, buying one currency, you are then and selling another.

For example, Euro/ US Dollar or US Dollar/ Japanese Yen. Currency pairs are abbreviated. The currency on the left is called the base currency, and the one on the right is the cross currency. The above pairs would be EUR/ USD and USD/ JPY. The value of a currency pair is determined by the strength or weakness of the base currency in relation to the cross currency. The next day you may see a quote for the EUR/ USD of 472If you listen to the financial news you will hear them say something along the lines of, "the Euro gained strength against the Dollar today" , or" the Dollar fell today against the Euro" . The base currency value is always That means when you see a quote of 4652 for the EUR/ USD, its value means 1 Euro will buy 4652 dollars.

In pocketbook english, that simply means it takes more dollars today to buy 1 Euro than yesterday. What the heck is a pip you might ask. Let s say you have an online FOREX account and bought the EUR/ USD yesterday at the above price of 4652 and today you sold, or closed out your trade at 472That would leave a profit of 73 pips. Well a pip has two definitions but they both mean the same thing, dollar wise at least: Price Interest Point and Percentage In Point. When you trade currencies online you will have to open an account with a forex dealer. I have never been able to get a clear difference in the definitions no matter who I have asked, and don t really worry about it anymore because, they mean the, like I said same thing dollar wise.

You can open either a standard account or a mini account. It used to be the pip was the smallest unit of value in the FOREX market. In the standard account a pip is worth approximately$ 10 dollars, and in the mini account it is worth approximately$ 1 dollar. Today however, many forex dealers quote in tenths of a pip. So the above quote might have read 47253, where the 3 is the tenth of a pip. They have carried out the quote one extra decimal number to give better and more accurate spreads. So its value would be either$ 3 dollars or$ .30 cents depending on the type of account you have.

That s because each currency pair has its own pip value. You may have noticed that I said pip values are approximately$ 1 dollar. The true value is determined by mathematical formulas and the exchange rate of the currency pair. Currency trades are made in fixed dollar amounts called lots. Some pip values are fixed and others fluctuate slightly as one currency rises or falls in value relative to the other currency in the pair. One lot in a standard account is equal to$ 1000, which controls$ 100, 00One lot in the mini account is equal to$ 100, and controls$ 10, 00Both standard and mini accounts typically have a 1% margin which allows the FOREX trader 100 to 1 leverage on their investment dollars. Unless you are interested in becoming an economist or some such thing, the information presented here is more than enough to let you get on with putting as many pips in your account as possible.

If you trade currencies online, the ultimate goal is to capture as many pips as you can, and not get bogged down in the details of what the exact value of each currency pair is.

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