If you are interested in learning more about trading foreign exchange then I am going to start with the most basic of forex knowledge. But before I start, I should remind you that even though there are simple ways to trade forex, in general this highly leveraged asset class is riskier than most. I personally trade and have traded foreign exchange and I never trade with retirement money but only with extra money I can afford to lose. It is one way I am creating multiple income streams.
With that said, learning to trade forex starts with knowing what a pip is. The word pip is an abbreviation for percentage in point. The number value of a pip is 1/100th of 1%. If you are familiar with markets in general you have probably heard of the term bip, or basis point. That is also 1/100th of a percent or .0001 in a decimal format. (I personally think pip sounds cooler, but that’s just my opinion.
Here is an easy example. When I recently placed a trade on the US Dollar versus the Canadian Dollar, I gained 71 pips. What does that mean in dollar terms? Well it really depends on how much money I had in the game. If I am trading micro lots, I am controlling 1000 units worth of that currency. One thousand units of dollars times .0071 is seven dollars and ten cents. That means that I made 7 bucks. This is a simplified example because the final profit will differ based on the exchange rate for each currency but we won’t get into that.
Let’s go back to the 71 pip story. What if I were trading a mini lot? A mini lot is 10,000 units worth of currency. A gain of 71 pips would equal 71 dollars. How about a standard lot? A standard lot of currency is 100,000 units worth of currency and a gain of 71 pips would equal 710 dollars.
Interested in learning more about trading forex? Check out my daily trades and charts here!