Welcome back in my blog vipfxsignal, for this Article i weel talk about the concept of the point in the Forex.
For Convert pips to dollar you must know three rule:
What is pips?
what’s lot size?
Ask /bid /action/close price and spread?
Rule: ((Action Price – close Price ) – Spread ) x lots value= Valuer
WHAT IS POINT (PIPS)
Point: is the smallest standard for measuring exchange rate movements in currency pairs
PIP is the abbreviation of the word “Percentage In Point”
The point represents the fourth decimal number 0.00001 In currency
Except for pairs that contain:
Japanese Yen, Gold, Silver, Oil, and Gas
The second decimal number is 0.01
When the pair moves EURUSD
From 1.0559 to 1.0569
This means that the pair has moved 10 three basis points
The same example applies to:
JPY, gold, silver, oil and gas
Take the USDJPY against as an example
Let’s assume that the dollar exchange rate is ¥ 115.75. If the exchange rate moves 4 points upwards, then the price will be 115.79
And to alert! Trading platforms currently offer 5-digit exchange rates for currency pairs and 3 decimal places for Japanese yen, gold, silver, oil and gas pairs.
Read Also: HOW TO GET YOUR FIRST 1000$ IN FOREX ?
STANDARD LOTS TO VALUE
- 1 point in 1lots = 10$
- 1Pips in 0,1lots = 1$
- 1 point in 0,01lots = 0,1$
PURCHASE PRICE, SELLING PRICE AND SPREAD
Each currency pair has two exchange rates, which are traded on the basis of the purchase price and the selling price.
The purchase price is also called the Ask price, which is the price at which you buy.
The sale price is also called bid price, which is the price at which you sell
and for example: GBPUSD
Ask price: 1.3362 Bid Price: 1.3353
Note: that the price of the request exceeds the price of the offer by a small amount, which we call the price difference SPREAD.
Price difference: The profit margin obtained by the party executing the transaction, whether it is a brokerage company or bank or exchange office.
Therefore, the spread of the price is the difference between the prices of supply and demand of the currency pair and we must know that each pair of currency pairs different price differentials from other pairs, the reason for differences in price differentials of currency pairs due to the real volumes in the forex market on these pairs, for example:
We find that the EURUSD is the lowest pair in terms of the price differential due to the high trading volume on this pair.
The price differential for the Euro-Dollar pair varies from broker to broker.
Therefore, the price difference is a competitive point between the broker firms, and it is necessary to know the price differences provided by the broke company before dealing with them.
As we are talking about brokerage firms, we must mention that
brokerage firms offer price differentials on two types:
TYPE 1: FIXED SPEARDS:
The broker is obliged to display the spreads consistently in all trading periods. The exchange rates in this type are usually 4 decimal digits for nonyen pairs, and two decimal places for yen pairs.
EURUSD Ask :1.1443 Bid: 1.1441 Spread : 2 pips
TYPE 2 : VARIABLE SPREADS:
Where price differentials vary depending on the volume of liquidity and market conditions; this means that spreads may widen in some market periods and may shrink in other periods. These companies typically offer 5 number currency exchange rates for non-yen pairs, and three decimal places for yen pairs.
EURUSD Sell At:1,14410 with 0.1 standar lots Close at:1,14210 Spread fixed at : 1 pips
Rule: ((Action Price – close Price ) – Spread ) x lots value= Valuer=
= ((1,14410 – 1,14210 ) – 1 ) x 1$
=(20-1)x1$=19$ win in this EURUSD trade
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