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 PIPS, dealing rates, bid, ask and spreads

FOREIGN EXCHANGE

Price Interest Points (PIPs)

The last decimal place is called a "PIP" or "POINT"

Money is made or lost by change in the PIPs

 Currency Pairs Exchange Rate USD/JPY 105.00 USD/CHF 1.1930 EUR/USD 1.12830

PIPs are the unit of measure whereby you make or lose money in the currency market. As the PIPs increase, so does your account value. Each PIP is worth a certain amount, depending on the currency and whether or not you are trading regular size lots or mini lots. As this last decimal place increases or decreases, you will make or lose money.

For example:

If the currency has the USD as the quote, it is worth \$10 per PIP. Therefore, if the EUR/USD exchange rate moves from 1.3455 to 1.3555 the contract will increase in value by 100 PIPS or \$1,000.

1.3555 - 1.3455 = 100 PIPS x \$10 per PIP = \$1000

PIP Value

If the USD is the quote currency (second) each PIP is worth \$10

If the quote is another currency the PIP value will be either above or below \$10, depending on the currency.

The value of each PIP will depend upon the currency pair and which currency is in the quote position. Again, if the USD is the quote currency, then each PIP is worth \$10 per PIP. If the quote currency is something other than the USD, the PIP value will generally be less than \$10. The formula for non USD quotes is as follows: If there are four decimal places as in the USD/CHF where the rate is 1.2345, the formula would be: 0.0001 x 100,000 / 1.2345 = \$8.10/PIP

If there are two decimal places as in the USD/JPY where the rate is 115.50 the formula would be: 0.01 x 100,000 / 115.50 = \$8.65/PIP

Dealing Rates

 The PIP value is identified by looking at the last numbers in the quoted price EUR/USD 1.1985 1.1988 USD/JPY 116.70 116.73 GBP/USD 1.7615 1.7619 USD/CHF 1.2909 1.2914

When trading currencies you will often see a two-sided quote, consisting of a bid and ask price. The bid is the price at which you can sell the base currency (at the same time buying the counter currency). The ask is the price at which you can buy the base currency (at the same time selling the counter currency).

BID, ASK and SPREAD

BID -- The Price you Sell

ASK -- The Price you Buy

SPREAD -- The difference between the Bid and Ask

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Source tradesteps4x.com