Forex market is gaining more popularity nowadays. Various investors and traders are focused on this market because of its profit-making techniques. In this scenario, one has to know different facts related to profit-making strategies. While trading in Forex market, one should be aware of Forex 1 pip and Forex hedging.
Any Forex trader needs a clear understanding of Forex pip to avoid any losses. This is because it denotes measured value that is pretty much required to trade in any currency pair. It will ease the process of trading with an exact value calculation. These techniques allow traders to reduce the overall risk in initiating and closing of positions. However, traders can take the advantage of the change in market trend with a minimal risk.
Forex hedging is the term that is used for the traders who are willing to protect their trades from any loss because of market movement. It is done by two methods that include spot contracts and foreign currency options. When traders are in long position, then they have to protect themselves from the downward risk. Whereas, when traders are in short position, then they have to protect themselves from the upward risk.
What is 1 pip in Forex?
Pip is the measurement of change in the exchange rate for any currency pair in the Forex market. In other words, a pip defines the smallest price movement of the exchange rate between a currency pair. 1 pip stands for ‘a percentage in point’. It is also called as ‘a price interest point.' Usually, currency gets quoted up to four decimal places. This means it will be the change in the last digit that specifies 1 pip.
For example, if any of the currency is quoted to 1.1000, then it will become 1.1001. Suppose this currency will become 1.1005, then it is said to be changed to 5 pips. Keeping the things as simple as possible, any investor can find pip with ease.
How to find Forex 1 pip?
Well, pip varies from time to time, and it usually depends on how any currency is traded in that particular period. There is a possibility of half-pip increments. In order to understand pip of any given currency, one has to find its value.
In Forex market, 1 pip = 0.0001, where Yen currency pairs show exception with two decimal places that is 0.01. Or, 1 pip is equivalent to 1/100 of 1 percent.
Now, to find a pip value of any particular trade, investors have to divide 0.0001 by current exchange rate. Multiply this value with notional amount to get your answer.
Importance of Forex 1 pip
If someone knows the exact value of pip for any currency pair, then trader can minimize the risk of losses. Forex market thus indicates the level of opportunity to its every trader. Most importantly it does not need any investment rather than time. One has to take steps to clear the doubts of a market trend with the proper use of Forex 1 pip values.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.