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Spreads and Pips

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Category: Beginners Guide

However, to be able to sell this foreign money pair, or sell the bottom foreign money in alternate for the quoted currency, you'd look at the bid price. It tells you that the market will purchase US$1 base forex (you will be promoting the market the base forex) for a worth equivalent to 1.2000 Canadian dollars, which is the quoted currency.

Whichever currency is quoted first (the bottom foreign money) is always the one during which the transaction is being conducted. You either buy or promote the base currency. Relying on what currency you need to use to buy or sell the base with, you refer to the corresponding currency pair spot trade fee to determine the price.

Spreads and Pips

The distinction between the bid price and the ask price is known as a spread. If we had been to take a look at the following quote: EUR/USD = 1.2500/03, the spread can be 0.0003 or 3 pips, often known as points. Although these movements could seem insignificant, even the smallest level change may end up in hundreds of dollars being made or lost on account of leverage. Again, this is likely one of the reasons that speculators are so attracted to the forex market; even the tiniest value motion may end up in enormous profit.

The pip is the smallest amount a price can move in any currency quote. Within the case of the U.S. dollar, euro, British pound or Swiss franc, one pip would be 0.0001. With the Japanese yen, one pip can be 0.01, because this currency is quoted to 2 decimalplaces. So, in a forex quote of USD/CHF, the pip would be 0.0001 Swiss francs. Most currencies trade inside a range of 100 to 150 pips a day. 
U.S. Government Required Disclaimer - Commodity Futures Trading Commission

Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. All trades, patterns, charts, systems, etc., discussed in this advertisement and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author and do not necessarily reflect those of the publisher or Tradewins.