By: Timothy Stevens

In currency trading, the concept of forex pips is one of the most vital, yet it can also be one of the most confusing. Understanding pips is important because it determines how much you will earn in a trade.

Basically, pips are the smallest price movement any exchange rate (the price of one currency expressed I units of another) can make. For example, the value of the euro on Wednesday was $0.8075; the next day it strengthened to $0.8073. Since the difference is $0.0002, you can say the euro gained two pips.

Exchange rates are commonly expressed up to four decimal points (with the exception of the Japanese yen which is measured in two decimal points) and price movements are usually incremental; hence, forex pips can also be computed by multiplying them with the size of the trade. Assuming you traded a typical lot of 100,000 euros, the value of one pip would be 0.0002 multiplied by 100,000 or $20.00. To convert the value of the pip to euros, just divide the value in dollars by the exchange rate. In the example above, the value of one pip would be 24.77 euros.

The premiums you pay when opening an options contract are also computed in pips. For example, you believe that the euro will further strengthen against the dollar, so you take out an option contract to buy 100,000 euros at $0.8072. If the broker believes that the risk for him is too high, he may quote a premium of 20 pips or $200.
As a currency trader if you understand how forex pips are computed you can easily determine your profit or loss in a particular trade.

About the Author

Timothy Stevens is a Forex Options Trader who owns http://www.NonDirectionTrading.com – He has helped hundreds of people on Trading Forex with Options.

He has recently developed a free e-course showing you a step by step process for starting your Forex Trading easier. To learn how to start Forex Trading with Options without wasting your time and losing more money, visit http://www.NonDirectionTrading.com/members/FreeReport.htm

Forex Winning Strategies by Vic Noble (DVD + online)

By: Andrew Daigle

The Forex market incorporates two primary types of Forex trading strategies. One such Forex strategy is based on a fundamental analysis and the other is based on a technical analysis. As a trader, you will likely have to incorporate both types of Forex strategies in your overall Forex trading strategy. Fundamental analyses are based on economic factors while technical analyses are based on price. There is a general consensus among market participants that the most highly traded currency pairs in the Forex market tend to be technical and the more exotic currency pairs tend to be more fundamental.

While both types of analysis are necessary for successful and profitable trades, most traders tend to rely more on one type than the other. When your Forex trading strategy incorporates technical analysis, you must be prepared to deal with the mathematical concepts necessary to manipulate pricing data. Likewise, when you incorporate fundamental analysis in your trading strategy, you must be prepared to handle the multitude of economic factors necessary to base your trades. In the end, the variety of economic data must be converted into price predictions and many traders resort to technical analysis because it is thought to have a built in mechanism for completing the conversion. However, incorporating a purely technical Forex trading strategy without regard for the fundamental aspects of the market is much like trading on luck. Sometimes you win, sometimes not.

Other factors that will influence your Forex trading strategy are your ability to manage money and to handle the psychological implications of participating in the Forex market. While many people have profited from their Forex trading strategies, losses are all but guaranteed with Forex trading systems. One of the nuances of Forex trading is that it involves calculated risks. If your financial situation or emotional circumstance is such that you cannot afford to sustain losses, you will likely loose more than your investment dollars, particularly if your losses are easily converted to physical illness.

It is important to develop a Forex trading strategy that complements your lifestyle and temperament. You need to understand the investment, the risks and the impact that your choices will have on your investment dollars and your lifestyle. In Forex trading, it is quite possible for a loss to multiple itself as market conditions vary and change. Your Forex trading strategy must include a plan of action in the case of a loss as well as a win. Another consequence of Forex trading is overconfidence. Overconfidence has caused many traders to engage other more costly and more risky trades following a win or series of wins. You will have to be responsible to dedicate the time necessary to track and analyze the trades that you engage. It only makes since that you engage a number a trades that you are reasonably able to manage during a given trading session. Forex trading can also become addictive for certain personalities. Your Forex trading strategy should include indicators that alert you when it is time to enter or exit trading. You cannot become overconfident about a win or series of wins. Likewise you cannot become too depressed over a loss or series of losses. FOREX trading systems are based on calculated risks and the wrong calculation leads to more risk and the potential for more loss.

About the Author

Andrew Daigle is the owner, creator and author of many successful websites including ForexBoost for a free forex education and a Free Forex Training Resource