Level 2 Forex Courses

Course 202 – What Is A Pip In Forex Trading

If you’ve come across the words “pip”, “pipette”, and “lots” while trying to get acquainted with the forex world and have wondered what it means or probably never heard of it before, we’ll be learning what these terms mean and how they are used. It requires some calculations, but not to worry, it will be broken down.

For starters, you should know that understanding pip values and calculating profit and loss is a necessity for every successful forex trader, so give your full attention to this one.

What Is a pip?

Pip is the unit of measurement used to express the change in value between two currencies. Normally, the last decimal place of a price quote is a pip.

For instance if USD/CAD moves from 1.1060 to 1.1061, that .0001 USD rise in value is ONE PIP.

Usually, currency pairs go out to 4 decimal places, however there are some exceptions like Japanese yen pairs which go out to two decimal places instead of the usual four.

For example, for EUR/USD, it is 0.0001, and for USD/JPY, it is 0.01.

What is a Pipette?

Another name for pipette is FRACTIONAL PIPS. Some forex brokers will rather quote currency pairs at “5 and 3” decimal places which is beyond the standard “4 and 2” decimal places.

A fractional pip or pipette can also be explained as a tenth of a pip. An example is, if GBP/USD moves from 1.40242 to 1.40243, that .00001 USD move higher is ONE PIPETTE.

Here is what a pipette looks like:

The pipette appears at the top right of the numbers.

Now here is how to read a pip.

How to Calculate the Value of a Pip

Having that each currency has its own unique value, it’s important to calculate the value of a pip for the particular currency pair we are trading.

We will be using a quote with 4 decimal places in the following example;

For the purpose of better explaining the calculations, exchange rates will be expressed as a ratio (i.e., GBP/USD at 1.2500 will be written as “1 GBP / 1.2500 USD”)

Complete Technical Analysis And Forex Geometry Course - Free Forex Lectures

Example 1: USD/CAD = 1.0200

To be read as 1 USD to 1.0200 CAD (or 1 USD/1.0200 CAD)

(The value change in counter currency) multiplied by the exchange rate ratio = pip value (in terms of the base currency)

[.0001 CAD] x [1 USD/1.0200 CAD]

Or simply as:

[(.0001 CAD) / (1.0200 CAD)] x 1 USD = 0.00009804 USD per unit traded

In other words, if we traded 10,000 units of USD/CAD, then a one pip change to the exchange rate would be approximately a 0.98 USD change in the position value (10,000 units x 0.0000984 USD/unit).

We say “approximately” because as the exchange rate changes, so does the value of each pip move.

Example 2: GBP/JPY = 123.00

Another example using a currency pair with the Japanese Yen as the counter currency which goes to two decimal places only. Here, a one pip move would be .01 JPY.

(The value change in counter currency) multiplied by the exchange rate ratio = pip value (in terms of the base currency)

[.01 JPY] x [1 GBP/123.00 JPY]

Or:

[(.01 JPY) / (123.00 JPY)] x 1 GBP = 0.0000813 GBP

Therefore, when trading 10,000 units of GBP/JPY, each pip change in value is worth 0.813 GBP approximately.

Finding the Pip Value in your Account Denomination

In figuring out the pip value of your position,it is important to find the pip value in terms of your account currency.

Since it is a global market and not everyone has their account denominated in the same currency the pip value will have to be translated to whatever currency our account may be traded in.

All you need to do is simply multiply and divide the “found pip value” by the exchange rate of your account currency and the currency in question respectively.

If the “found pip value” currency is the same currency as the base currency in the exchange rate quote:

We’ll be using the GBP/JPY example above, let’s convert the found pip value of .813 GBP to the pip value in USD by using GBP/USD at 1.5590 as our exchange rate ratio.

If the currency you are converting to is the counter currency of the exchange rate, all you have to do is divide the “found pip value” by the corresponding exchange rate ratio:

.813 GBP per pip / (1 GBP/1.5590 USD)

[(.813 GBP) / (1 GBP)] x (1.5590 USD) = 1.2674 USD per pip move

So, for every .01 pip move in GBP/JPY, the value of a 10,000 unit position changes by approximately 1.27 USD.

If the currency you are converting to is the base currency of the conversion exchange rate ratio, then multiply the “found pip value” by the conversion exchange rate ratio.

Using our USD/CAD example above, we want to find the pip value of .98 USD in New Zealand Dollars. We’ll use .7900 as our conversion exchange rate ratio:

0.98 USD per pip X (1 NZD/.7900 USD)

[(0.98 USD) / (.7900 USD)] x (1 NZD) = 1.2405 NZD per pip move

For every .0001 pip move in USD/CAD from the example above, your 10,000 unit position changes in value by approximately 1.24 NZD.

And you don’t necessarily have to lay down your calculation like this you know, most brokers just give you direct answers, however, it is good to know how they arrive at their answers.

In the next lesson, we will discuss how these seemingly insignificant amounts can add up.

We advise you to open a Demo account for the purpose of this phase of learning.

Click on this LINK to create a HotForex Demo or Live Trading account >>> OPEN ACCOUNT

Create A Hot Forex Demo Or Live Account - Free Forex Lectures — Create A Hot Forex Demo Or Live Account – Free Forex Lectures

Forex Trading Requires Patience

Course 206 – Forex Trading Requires Patience And Knowledge

We don’t want to go any further without letting you in on some things you should know before considering trading currencies.

All forex traders, LOSE money on some trades.

Being flexible is key to trading successfully, so you should not totally rule out losing sometimes or else you would find it difficult to adjust to trading because loss is inevitable at some point or another.

However, it is important to know that 90% of traders lose money, mainly due to lack of preparedness, skill, discipline, not having a trading edge, and having poor money management guides.

Trading forex is neither for the unemployed, nor for those who can’t afford to pay their bills.

You should have at least ₦350,000 of trading capital that you can afford to lose.

Don’t expect to start an account with a few thousand Naira and expect to become a billionaire.

Due to the size and liquidity of the forex market, not to mention the tendency for currencies to move in strong trends, the market is largely known for speculations.

This doesn’t mean that every forex trader makes it big, actually, only a few traders are very successful.

A lot of traders start out with the wrong expectations, hoping to make really huge profits in no time but lacking the discipline and diligence required to master the art of trading.

If you are not disciplined at little commitments, how then can you be ready to take on one of the most taskings, but financially profitable, endeavors known?

Short term trading IS NOT for beginners, and it hardly results to “getting rich quick”. You can’t make huge profits without taking huge risks.
It’s also important to know what a trading strategy is not. If you mistake taking huge risks for suffering huge losses from inconsistent trading performances, then it’s either you most likely don’t even have a trading strategy or you think trading is gambling.

Forex Trading is NOT a Get-Rich-Quick Scheme

Forex trading requires SKILL and it takes TIME to learn.

Skilled traders record huge success in this field. Just as it is other professions, it takes a process to achieve success, it doesn’t just happen.

Forex trading isn’t as easy as some people might want you to think it is. Look at it this way, if it were that easy, wouldn’t everyone trading be millionaires?

The fact is that, just as it is in business, even skilled and experienced traders are also faced with losses once in a while.

We need you to understand that there is no easy way out in forex trading.

It takes consistent PRACTICE and EXPERIENCE to master.

You can’t cut corners. Hard work, deliberate practice, and diligence are key.

In conclusion, use a DEMO ACCOUNT to practice trading until you’re certain of a method that you know thoroughly, and can comfortably execute objectively. In conclusion, find what works for you and how.

We advise you to open a Demo account for the purpose of this phase of learning.

Click on this LINK to create a HotForex Demo or Live Trading account >>> OPEN ACCOUNT

How To Start Demo Trading

Course 205 – Demo Trade Your Way To Success

Becoming a successful forex trader is possible; it, however, as with other works of life requires diligence, commitment, a little luck, and a whole lot of patience and astuteness.

With most forex brokers, you can open a demo account easily. The good news is it’s FREE in most cases. These “pseudo” accounts have almost the same capacity that “actual” accounts have.

If you are wondering “Is it entirely free? Why is it free?”

The answer is YES, it is entirely free. Most brokers would love for you to master the nitty-gritty of their trading platforms and enjoy trading without risk, that’s why you have free access to demo accounts for the practice. They want you to fall in love with the art of trading, so much that you’ll want to trade with real money. With the demo accounts, you will learn the intricacies of forex trading, be able to test your trading skills and processes with NO risk involved.

YOU ARE ADVISED TO DEMO TRADE UNTIL YOU DEVELOP A FIRM, PROFIT-MAKING SYSTEM BEFORE YOU VENTURE INTO PUTTING REAL MONEY ON THE LINE.

You sure don’t want to lose your money, do you?

Do NOT open a live trading account until you are CONSISTENTLY trading PROFITABLY on a demo account.

If you can’t practice until you’re profitable on a demo account, it is most likely you’ll not be profitable live when real money and emotions are involved.

It is advised that you demo trade for at least THREE to TWELVE months.

You certainly can avoid losing all your money for a year, can’t you? Well if you can’t, you better use the money for something else…maybe sow a seed.

Another piece of advice you should heed is to concentrate on ONE major currency pair.

For beginners, it gets way too complex if you have to keep tabs on more than one currency pair as a demo trader.

Concentrate on ONE of the majors because they are the most liquid and this means tighter spreads and less chance of slippage.

Another reason is, as a beginner, you need time to focus on improving your trading procedures and creating good habits.

You’ll also need to try different market environments and learn how to fine-tune your processes and approach as market behavior changes.

Finally, I’m going to need you to make a solemn promise; say after me:

“I will demo trade until I develop a firm, profit-making system before I trade with real money.”

“I am a clever and patient forex trader”

We advise you to open a Demo account for the purpose of this phase of learning.

Click on this LINK to create a HotForex Demo or Live Trading account >>> OPEN ACCOUNT

Level 2 Forex Courses

Course 204 – Types Of Forex Orders

Forex orders are mechanisms traders use to manage their daily trad. A good knowledge of FX orders is important, as they aid traders to exit and enter the market appropriately.

There are different orders and they vary between brokers, however, there are some orders which all brokers accept and adopt. Let’s Take a quick look at some of these orders.

Market Order

The market order is normally the first order traders come across in the market. Basically, a market order is an order to buy or sell at the best available price. In the market order, an action to buy is immediately executed at the prevailing market price.

For example, the bid price for EUR/USD is currently at 1.2140 and the ASK price is at 1.2142. If you wanted to buy EUR/USD at the market, then it would be sold to you at the price of 1.2142 You would click buy and your trading platform would instantly execute a buy order at that exact price.

Note: due to market factors and other related conditions, the selected price might be different from the final executed price. This is always not the case though.

Limit Entry Order:

A limit entry order is an order to buy or sell at a particular price or better. A limit order to BUY at a price below the current market price will be executed at a price equal to or less than the specified price.

A limit order to SELL at a price above the current market price will be executed at a price equal to or more than the specific price.

Stop Entry Order:

A stop entry order is quite the opposite of a Limit Entry Order. A stop entry order is an order placed to buy above the market or sell below the market at a specific price.

Stop Loss Order:

A stop-loss order is applied to prevent further losses if the market goes against your trading position. Stop-Loss Orders are important in forex trading as they aid to minimize losses in any event of one.

If you are in a long position, it is a sell STOP order. If you are in a short position, then it is a buy STOP order.

Trailing Stop Order:

A trailing stop is a modification of the Stop Loss order. However, unlike the stop order, a trailing stop order is not subject to a specific amount, here the stop price is fixed with an attached trailing amount. That is if the market price rises in your favor, the stop price rises by the trial amount, but if the stock price falls against you, the stop loss price will not change rather it comes into effect to prevent a loss or further loss.

Good Till Cancelled (GTC):

A GTC order is only effective at the instance of the trader. It means that your position in the market remains good until you decide to cancel notwithstanding the market situation at the time.

Here, even your broker cannot cancel the order, he could only play an advisory role.

Good for the Day (GFD):

A good-for-the-day order is only active until the end of the particular trading day the order was made.

It is important that you confirm with your broker what time signifies the close of a trading day in the active market since the FOREX market is a 24- hour market.

One-Cancels-the-Other (OCO):

This implies placing a combination of two entry and/or stop-loss orders, the execution of one order in effect cancels out the other order immediately.

For example, if the price of EUR/USD is 1.2040. You want to either buy at 1.2095 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls below 1.1985. The understanding is that if 1.2095 is reached, your buy order will be triggered and the 1.1985 sell order will be automatically canceled.

One-Triggers-the-Other:

This is the opposite of the OCO, here the execution of one order automatically initiates the execution of the other order.

This method is usually employed when a trader seems to be too busy to monitor his trading and the market fluctuations.

As a newbie, it is strongly advised to not do complicated, stick to the basics of trading, and grow with experience. Importantly, always ask your broker questions for better clarification.