forex pips
 spread image


 forex leverage graphic

Join my newsletter (learn more)       Foreign exchange | forex pips    






About this site
Learn about investing in financial markets. I am trying to add new articles, information about inves...
Learn more


  • General
  •    » Technical analysis
       » Fundamental analysis
       » Intermarket analysis
       » Japanese Candlesticks
       » Money Management
  • Stock market
  • Foreign exchange
  •    » Forex strategies
       » Forex Journal
  • Options
  • PAPER trading
  • Platform reviews



  • Investing blogs

    + The Visual trader
    + Commodity Trader
    + Market Rider
    + Stock Insight
    + The Kirk Report
    + Long Term Investment Strategies
    + Short-term trading
    + Wily Trader


    Forex for beginners

    + Play/test with $25


    Entrepreneur blogs

    + Guy Kawasaki
    + Business Advice Pro


    Investing Games

    + Investing Experience


    Forex - pips, spread, margin, leverage


    Tags -             

    Currencies are traded in pairs and exchanged against each other. The majority of currencies are traded against US Dollar. The first currency in the exchange pair is called Base Currency and the second currency is called the Counter Currency or Quote Currency.

    The exchange rate tells you how much of the counter currency must be paid to buy one unit of the base currency. The exchange rate also tells the seller how much is received in the counter currency when selling one base unit. For example, an exchange rate for EUR/USD of 1.2083 specifies to the buyer of Euros that 1.2083 USD must be paid for one Euro.

    Spread is the difference between the buy and sell price. Like in stock market ask and bid. This is the difference between the market makers selling price and the price the market maker is ready to pay to buy the same currency. This means that if you buy a currency and then sell the currency before the price has changed you will lose money because of the spread. Bid price is always lower than the ask price, thus the situation. For example if EUR/USD bid/ask is 1.2010/1.2015 then by selling the security before the price has changed, you will lose 5 pips.

    Now you might be wondering what the heck the pip is. I know that when I first started reading about forex and such I wondered for quite a bit what is that pip they are talking about. Basically, as currency rates do not change a lot then the changes are brought out in pips. One pip is 0.0001 in case of all the currencies excluding Yen. For Japanese Yen one pip is 0.01. So if the exchange rate changes by 20 pips then now you’ll know it means 0.0020.

    When in banks the exchange rates – buy/sell rates (spread) for different currencies may vary even more than 1000 pips, in forex market it’s a lot smaller and because of that investors may profit even from only small price movements.

    Price of a currency is called Quote and there are two kinds of quotes – direct quotes and indirect quotes. Direct quote is the price for 1 US dollar in terms of the other currency. Indirect quote is the price of 1 unit of a currency in terms of US Dollars. The market maker provides the investor with quotes. The quote is the price the market maker will honor when the deal is executed.

    When quote is not put against US dollar but against another currency, this is called Cross rates. For example GBP/YEN. This is called cross rate because it is calculated via US Dollar. To give you an idea how cross rate is calculated:

    GBP/USD = 1.7464

    USD/JPY = 112.29

    Thus GBP/JPY = 112.29*1.7464 = 196.10

    Don’t worry about the calculation though, in different forex trading platforms the calculations are all done for you. But it’s still good to know where the rate has come from.

    Now, lets talk about MARGIN. Trading providers need collateral to make sure that the investor can pay up in case of losses. This collateral is called margin and is also known as minimum security in forex. This is basically the deposit to the trader account that is intended to cover and possible trading losses in the future. Margin enables traders to hold a lot larger position than their account value.

    Some trading providers also require a maintenance margin that is used to cover administrative costs and such. And most importantly to cover loss in case of a “gap” or “slippage” in rates. For example if you have set a stop-loss rate to 1.8075 but the the rate jumps from 1.8050 directly to 1.8090. To cover loss that might come from here, the maintenance margin is used.

    Leverage allows traders of forex market use credit. You might sort of compare it with short selling in stock market. Not the same, but starting traders might find the idea bit similar.

    The leverage may allow a trader control 50-400 times bigger amount than he has actually deposited. For example if you deposit just $100 you may be able to actually play with $10 000. Of course, in this case this $100 is the margin you are willing to lose, everything’s at stake.  


    Now what? Digg it  |  Add to My Yahoo  |  Add to Google Reader  |  Add to Del.ICIO  
    Comments (1) / Link to this topic - http://www.learning-to-invest.com/
    Forex---pips-spread-margin-leverage--9.html




    investment advisory
    www.thedtscorp.com -

    Forex trading systems

    #1 Time-tested Forex trading system, with DOCUMENTED PROOF, that has the potential to turn $1,000 into $1,000,000 in just 24 months. Limited-Time Offer Price: $97

    #2 Powerfully Effective Forex Trading System That's Shocking Professional Traders Around The World......Completely Guaranteed To Generate 83-114-157 Pips A Week! Price: $97

    #3 Two Forex trading methods which have been hidden for years, known to only a small group of Wealthy Trading Elite! Grab 100's of pips weekly by spending only a few minutes a day at your computer! Price: $97

    #4 These Ruthless Trading Tricks And Tactics Instantly Transform You Into A Profit-Making Machine Scoring Wining Trades After Winning Trades. Price: $97

    #5 The AWARD WINNING "work from home" solution by someone who used to work for the Deutsche Bank as a forex advisor. Price: $198 (50% coupon available)

    latest submissions
          » Volatility is your friend

          » Tips from successful day traders, Part 3

          » Tips from successful day traders, Part 2

          » Tips from successful day traders, Part 1

          » Make money not debt

          » Make money not debt

          » No skills? Free online trading school is there to help you

          » End of month and need a loan?

          » M&T e-Money Market

          » 5 Traits of Highly Effective Financiers

          » Great forex product reviews

          » It's all about money management

          » What is going to happen next?

          » Brutally honest analysis of yesterday

          » USD at its lowest levels of 2 years

          » Testing time, Day 3

          » Testing time, Day 2 UPDATE

          » Testing time, Day 2

          » Testing time, Day 1

          » My own trading plan

          » Technical indicators - Aroon, ATR, CMO, ADX

          » Creating a trading plan

          » Results of the trading competitions and next week

          » Trading rules - something new to think about

          » Forex strategies: Short term strategy

          » The game of probabilities

          » What can you learn from poker?

          » Elliot wave - guidelines for wave framework

          » Introduction Elliot Wave Principle & Fibonacci ratios

          » What does Straddle mean?

          » Forex platform review: Easy Forex

          » How to find and confirm a trend?

          » Different look into trading and life in general

          » Introduction to Swing Trading

          » Introduction to 1-2-3 Trading Method

          » More trading rules

          » Candlesticks – the importance of Gaps

          » Sakata’s Method / method of Munehisa Honma

          » Money Management

          » Candlestick Continuation Patterns

          » Forex and intermarket analysis

          » Candlestick Reversal Patterns III

          » Forex strategies: The Sidus Method (EUR/GBP and EUR/USD)

          » Forex strategies: Big Ben Strategy (GBP/USD)

          » Foreign Exchange: Carry Trades

          » Candlestick Reversal Patterns II

          » Candlestick Reversal Patterns I

          » Introduction to Japanese Candlestick Charting

          » MACD histogram

          » The Three Moving Average system

          » Technical indicators: Williams %R indicator

          » Technical indicators: Parabolic SAR (Stop & Reverse)

          » Common sense trading rules (Michael Jenkins)

          » Geometry for predicting market behaviour (Michael Jenkins)

          » Emotional vs rational trading

          » Competition: First Day’s thoughts

          » Trading competition, 4 weeks

          » Bollinger bands

          » Relative strengh indicator - RSI

          » Introduction to Intermaket analysis III - global markets

          » Introduction to Intermaket analysis II – related markets

          » Learn to do your maths

          » Introduction to intermarket analysis

          » Introduction to technical indicators II

          » Introduction to Technical indicators I

          » Recognizing chart patterns II

          » Recognizing chart patterns I

          » More on volume & OBV

          » Introduction to charts

          » Learning from winnings AND losses

          » What are sideways movements?

          » Importance of volume

          » Introduction to Dow’s Market trends

          » Bull Market and bear market

          » Who is Charles Dow and why should you know him?

          » Stock background search

          » Introduction to stock options

          » Forex - pips, spread, margin, leverage

          » Basic introduction to Forex trading

          » What is Pattern Day Trading

          » Signs a company is going bankrupt

          » How to analyse stocks and forex?

          » Which online trading platform to choose?

          » How do I set my financial goals

          » Investing basics - think before you act

          » Learning to invest




    Buy Silver
    goldmoney.com - why buy silver from goldmoney? all customer silver is insured and audited. open a free account to buy silver.
    buy future payments
    investment advisory

    Privacy Policy | All rights reserved © Learning To Invest 2006, Email: / forex pips