Trading in the forex market is dependent on precise calculations and wise investments. A trader whether new or seasonal trades forex with the sole aim to incur maximum profits. However to do so, one needs to understand the basic concepts of price movements and the terminologies involved in this financial market. One such terminology is the forex pip point.
In spite of pip and point being pronounced together, they are entirely separate concepts although closely related. A forex pip point, for instance, represents the smallest price change on the left end of a decimal point. Pip, on the other hand, symbolizes the minimal price change on the right side of a decimal point.
Another term quite similar to pip is a tick. It also represents price change succeeding the decimal with the difference that it is used in stocks whereas a pip is used in a forex market.
Getting into details:
The pips and points in forex are vital for a proper understanding of this market. Therefore, a greater insight can help in this respect.
One can better understand the concept of pips with the aid of an example. Suppose a trader is dealing in USD/EUR. This currency pair is currently running at 1.3000. A forex calendar and candlestick analysis state that USD/EUR will rise to 1.3009. As a result, this trader decides to go long on that currency pair and close this deal at 1.3007. If his deal goes the desired way, then at the end of the day he will enjoy a benefit of 7 pips.
Points are the largest among all indicators that represent a price change. It is the most generically used term among traders to describe price fluctuations. Consider an investor dealing in stocks of Company ABC. Therefore, he will represent a price escalation from $120 to $125 has a gain of 5 points.
In addition to forex pips and points, ticks are another form of representing the price action. However, the measurement of ticks depends on the price increment factor of a market. For example, if the increment factor is 0.0001, then for a rate deflection of 1.2347 to 1.2348, traders will represent their gain as one tick. On the other hand, if the increment factor is 0.25, then for price escalation from 450.00 to 451.00, his profit will count as four ticks.
How is a forex pip point market specific?
Be it points, ticks or pips, each of them serve a different purpose in particular markets. Points and ticks find their use in these futures market and decipher that mark to which a particular price can or might move. Pips, on the other hand, finds in use exclusively in the forex market.
In addition to forex point and pip, one also uses the concept of ticks in charts. A tick chart regulates and monitors every transaction which helps a trader to review his trades and decide his strategy at the end of the day.
The concept of forex points pips is of utmost importance if one has to gain from his transactions. They represent the smallest units of gain or loss yielded from a particular deal.
Be it in the futures market, the stock market or currency market, knowledge of forex pip point is crucial to surviving in this trading industry.
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.