Pip May Refer To Many Things

In general terminology the abbreviation “pip” may refer to many things like Protective Industrial Products, Picture-in-Picture, Personal Identity Provider, Partners in Protection, Preferred Internet Provider, Performance Index Paper etc.
In currency trading “pip” stands for “percentage in point”. This is the smallest increment of change in forex trade. It is the smallest number in quotation of a currency.
In foreign exchange market, rates are quoted to the fourth decimal point. For example, if the price of a burger in the market is $1.22, in forex market the same burger will be quoted as 1.2200. Under this example, the 4th decimal point will constitute one pip and normally equals 1/100th of 1%.

The above is the general rule. Exception to this is the quotation in USD/JPY which is only up to 2 decimal points. This is because Japanese Yen has not been revalued since Second World War. Thus in case of Yen, the quotation is only up to 1/100th of yen as against 1/1000th with other major currencies.
All other currencies in relation to Yen will be quoted up to 2 decimal points. The usual pairs will be AUDJPY, CADJPY, CHFJPY, EURJPY, GBPJPY etc.
Other factors that go in the understanding of a pip and pip spreads are trading size, extent of leverage and rate of a currency pair. In case of USD, with a leverage of 1:100 and trading volume of one lot, one pip will have a value of $10.
The above will be the minimum incremental value by which USD will fluctuate. Thus, if there is a one pip change, that means one has gained or lost $10.
One pip value for one lot in USD will be equivalent to $10 in case of all currency pairs not involving JPY. Where JPY is the other currency in a pair, one point value will be equivalent to $1000 / USDJPY rate.

Closely associated with pips is the “spread”. This is the difference between bid price at which a forex broker is willing to buy the first currency of a pair and the offer or sell price at which he is willing to sell the first currency of a pair. The difference between bid and ask prices is the spread.
If EUR/USD is quoted as 1.4205/1.4207, the spread will be equivalent to EUR 0.002 or 2 pips spread . The size of a spread depends upon the popularity of a currency pair. The more popular a pair, smaller the pip spread and vice versa.

Pip spread may be better for major players which trade in large quantities as compared to retail or individual traders. Spot prices on EUR/USD are usually no more than 3 pips wide (0.0003). With increased competition, pip spreads have shrunk on major pairs to as little as 1 to 2 pips

[ForexGen Customer Support]

We provide a full time assistance service to support our customer in dealing easily with ForexGen trader software. Even if you face any problem during downloading or setting up the software, we will help you overcoming it.

Making Sense of Forex Quotes and Pips

This pip spread means that if you were to buy a great deal of currency, then sell it before there had been any change in the relative values of the two currencies, you would lose money on the trade, but the dealer would make money
from the trade. A Forex dealer makes their money from the Ask/Bid pip Spread. They are in a good position, as they stand to make money whether or not you do well with your trade.
A change of 1 in the last decimal place in a quote is named a Pip spread. this is the smallest amount by which the relative values of two currencies will change. Normally, a Forex brokers commission (the Ask/Bid Spread) will be somewhere between 2 and 5 Pips spread.

A movement of 20 to 50 Pips spread is a typical shift in the value of a quoted pair on any given day of Forex trading. The market can sometimes experience greater volatility though, with much larger movements being seen. In November 2007, there were some bigger shifts in the relative values of the US Dollar (USD) and the UK Pound (GBP), when the change in relative value of the two currencies was as much as 200 Pips spread on some days.
Usually, the daily changes in the Forex market are very small - so trading with very large amounts of money is the way to go if you are to make a sizable profit.

Let's say that the Euro (EUR) is expected to rise against the U.S. Dollar (USD). Based on this, you buy 100 Euros at a quote of EUR/USD = 1.4720/1.4725. A hundred Euros would cost you $147.25. If the Euro rises fifty Pips spread against the dollar the quote is now EUR/USD = 1.4770/1.4775.
Then say you sell your hundred Euros and buy U.S. Dollars. Your Euros would then fetch $147.70, or a profit of only $.045. Not much - even had you purchased a thousand Euros, you would still only have $4.50 to show for a day's trading. This is why Forex trading is generally done with much larger amounts of money.

[Why ForexGen?]

1. Lowest spreads in the market with 0-1 pips in 10 pairs, no commissions, no swaps and instant account Activation.
2. Scandinavian quality with Swiss precision, funds secured and local agents in 18+ countries.
3. ForexGen offers Forex trading in the major currency pairs and crosses.
4. Low capital start, with $250 as a minimum account size.
5. Liquidity and 24/5 availability are the characteristic factors of the Forex market compared with other financial markets.
6. ForexGen offers a free trial Forex demo account that allows you to test your skills and practice without risking real money.

Spreads In Forex

The difference between the bid and ask price is the spread, which constitutes the cost of the trade. In fact, all traded instruments - stocks, futures, currencies, bonds, etc. - have pip spread. If a trader buys at 1.2884 and then sells immediately, there is a 3 pip spread loss incurred. The trader will need to wait for the market to move 3 pip spread in favour of his/her position in order to break even. If the market moves 4 pip spread in your favour, he/she starts to profit.

Many online trading firms like to promote margin forex trading as an almost cost-free instrument - commission free, no service charge, no hidden cost, etc. Traders should know that pip spread is the cost of trading, and in fact, it also represents the main source of revenue for the market maker, i.e. the forex trading company. The pip spread may appear to be a minuscule expense, but once you add up the cost of all of the trades, you will find it can eat away quite a portion of your account or your profit. If you check the price tag of a T-shirt before you buy it, do the same thing when you trade forex, look into the pip spread before you decide to trade. Your trade needs to surmount the spread (the cost) before it profits.

Know your expense: the pip spread
pip Spread is the cost to a trader. On the other hand, it is a revenue source of the firm who executes the trade. In the foreign exchange market, the pip spread can vary a lot depending on the executing firm and the parties involve. Inter-bank foreign exchange can have pip spread as tight as 1-2 pips spread, while the bank can widen the spread to 30-40 pips spread when dealing with individual customers. If you check out the pip spread of those small exchange shops nearby the tourists' sights, you may find the pip spread can go up to 400 to 600 pips.

Thanks to keen market competition, the pip spread of online forex trading is getting tighter in the past few years. For major online forex companies, their pip spreads are essentially the same. The table shows the typical pip spread of four major currencies of online forex trading at the time being:
Pair Spread
EUR/USD 2-3 pips
USD/JPY 3-4 pips
USD/CHF 5 pips
GBP/USD 5 pips

It is important for a trader to find the tightest spread as possible, but anything that is far lower than the typical pip spread is skeptical. The pip spread is the main source of revenue of a forex trading firm, if the firm cannot earn enough from the pip spread, there maybe some other hidden cost in the transaction.
Another point to note is that many market makers often widen the pip spread when market conditions become more volatile, thus increasing the cost of trading. For instance, if an economic number comes out that is off expectations, thereby creating a flood of buyers or sellers, the market maker may often widen the pip spread to restore the balance between buyers and sellers. As a result, traders should inquire about the execution practices of their clearing firm; firms with poor execution of orders and a tendency to widen pip spreads will ultimately result in higher trading costs for the end user.

[ ForexGen Services]
Client Services

• Customer Support
• Trading Support

ForexGen | Forex Trading - a Guide to Pips and Spread in Online Forex Trading

The first thing you must understand in forex trading is the spread and the pips. Each currency is traded against another one. This is called a currency pair. An example for a popular pair with high daily trading volume is EUR/USD.
The EUR/USD exchange rate is one of the most traded contracts in the world. In total the forex market .
trades around $2 trillion Dollars every day but there are only a few currency pairs that are traded with high volume.

When you want to trade this pair then you need to know the spread and the value of a pip. The spread is the difference of the buy and sell price. For example you want to buy the Euro against the Dollar. The current price that your trading platform displays is 1.5000 x 1.5001. That means there are 1 pips spread.
You can buy the Euro at 1.5001 but sell it only at 1.5000 right now. The price of the currency pair is constantly changing. The spread can also change. The spread will get bigger with more market activity for example. Your broker is the one who earns the spread. He widens the spread when he has more risk and reduces the spread when the risk for the broker becomes smaller.

You have no other choice than paying the spread. There are brokers that offer zero spread trading but that is often an illusion. The broker makes the pricing and he can give you any price he wants. The price you see may have no spread but you can be sure that you pay a price for it some way.
Other popular currency pairs are GBP/USD, USD/JPY and CHF/USD. Your trading platform may have dozens of pairs available but do not forget that only the major currencies provide enough volume and volatility for day trades.

About ForexGen
ForexGen.com is an online trading service provider supplying a unique and individualized service to Forex traders worldwide. We are dedicated to absolutely provide the best online trading services in the Forex market.
ForexGen provides a unique online trading experience based on our intelligent online Forex trading package, the ForexGen Trading Station, including the best online trading system.
ForexGen serves both private and institutional clients. We have a strong commitment to maintain a long term relationship with our clients.