So before we go any futher with learning how to forex trade first of all lets ask the question, what exactly are pips and how do you get them in the first place? In this article i intend to answer these questions so you have more of an understanding and you can make sure that you are always in your game.
When learning how to forex trade to some people this can seem a little complicated at first if you're a newbie. To those that have never traded formerly, you might be completely baffled with all of this discussion about pips and charts and stoplosses, etc. So it's upmost important that you start at the basic level and in order to move up and become more advanced you need to learn the terminology well before you start investing your hard earned money. No one should be silly enough to invest in something that they don't understand because that is a sure way to lose your money. This is a fast way to turn into broke.
When you trade currency, you're constantly buying one and selling the other. Even if you're placing a "sell" order, you're simply selling one currency and buying the other. What you're making a bet on is the relation that one currency has to the other. For instance:- if you purchase the EUR/CHF pair, what you're really doing is buying the EUR and selling the CHF. You're hoping that the worth of the EUR rises contrary to the value of the CHF. If you find this happens then you will find you'll make money and be very happy.
Important: The theory goes, how do you find out how much profit you've made from that trade?? You're trading two diverse currencies here, so how can you determine the movement between the pairs? This is where pips occur into play. In forex trading, pips are basically a way to measure the movement in comparing two currencies. For example, let's say that you obtain the EUR/CHF at 1.5146. You then sell it afterward for 1.5166. The very last digit in a price quote like this represents the pips. Therefore, in this paradigm, you now made 20 pips. This is a simplified example, but it works like this all the time.
Then depending on what currency your account is in, and how many lots you've traded, this will determine how much money you actually made. In Meta Trader 4, the conversion will be displayed instantly in the Profit column. Therefore, you won't have to sit and figure this out all the time. However, it is still nice to know the basic idea behind it.
Overall, forex trading pips are a pretty relaxed concept to understand. It might take a little bit of playing around with the platform before you feel completely comfortable with it. However, if you take your time, the process is a lot easier than you might think. You want to do whatever you can to come out ahead when it comes to pips. If you're making pips, you're making money and everybody is happy. Except of course... The person that you're trading against.
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