Understanding pips is extremely important as a pip denotes the smallest movement in the price of a currency and it is this movement which determines your profit or loss when closing your trading position.

For most, but not all, currencies a pip is 0.0001 or 0.01%. So, when a currency moves from a price of 1.7800 to 1.7805 it is said to move 5 pips.

Perhaps the easiest way to understand how to calculate pip values is to start by looking at currency pairs involving the US Dollar. In any quote the US Dollar can be either the base currency or the counter or quote currency and we'll start by considering the situation when the US Dollar is the quote currency as in the case of EUR/USD, CAD/USD or GBP/USD.

In this case the situation is simple because a pip will always have a value of $10. So, if you are trading GBP/USD and the market moves in your favor by 5 pips you will make a profit of $50. Let's see this in action.

Supposing the rate for GBP/USD is 1.9340. This means that 1 UK Pound is worth 1.9340 US Dollars. Bearing in mind that a standard interbank lot size is 100,000 this means that 100,000 UK Pounds are worth 193,400 US Dollars. If the market now moves 1 pip so that GBP/USD is 1.9341 then 100,000 UK Pounds will now be worth 193,410 US Dollars - a rise of $10.

Now let's look at the situation when the US Dollar is the base currency and consider a quote of USD/GBP = 0.5170. Here 1 US Dollar is worth 0.5170 UK Pounds and 100,000 US Dollars are worth 517,000 UK Pounds.

If the price moves up 1 pip then USD/GBP = 0.5171 and 1 US Dollar is worth 0.5171 UK Pounds and 100,000 US Dollars is worth 517,100 UK Pounds.

In this case a movement of 1 pip represents a value of 100 UK Pounds which, translated into US Dollars gives a pip value of 193.39 US Dollars (100 ÷ 0.5171).

From this we can see that with the US Dollar as the quote currency a pip will have a value of $10 for a standard trading lot but that the pip value will vary with the market price when the US Dollar is the base currency.

There are a variety of ways of earning an income, and it seems that since time began, mankind has been searching for easier, better, faster, more humane, or more interesting ways of increasing wealth. The latest method to intrigue thoughtful minds is foreign currency trading on the Forex Market. The goal of currency trading is to make money buy trading one currency for another as the value of one goes up and the other goes down, and it is possible for just about anyone to achieve that goal and beat the Forex Market. The three most important tips to remember are:

Learn everything you can before investing your money. There are thousands of websites, books, computer programs, and articles available to help you hone your skills. Before you sink your hard-earned money into the actual Forex Market, you should know how to read a Forex quote, understand pips, and be able to grasp the concepts of strengthening and weakening currency.

Be aware of global news. Because Forex is a worldwide system, everything that happens in the world has the potential to change the values of currency. It is of utmost importance that you know what is happening in the world.

Be prepared for the long haul. Although it is possible to make great amounts of money in a short period of time, most investors realize that the majority of profit will come from carefully analyzing trends in currency fluctuation rather than focusing on separate, little, individual trades.

Following these three simple guidelines while you build your knowledge of the Forex system of building wealth will undoubtedly help you beat the Forex market and reap the rewards of financial success by trading currency.

The currency markets are the backbone of global economy and the banks are riding it like a bucking bronco. The banks don’t make their money from speculating or trading the currency markets they make their money from being the currency market. What I mean by the banks is being the market is that they will make money whether you win or lose on a trade. This happens because the banks make money from the pip spreads on the front end and are always in a hedged position when a currency transaction occurs. So it does not matter what the market ultimately the banks wins regardless. Well if the banks hedge there position to protect them selves, why don’t we as traders do the same.

Everyone has heard the term for every action there is a reaction, and every negative has a positive, and what goes up must come down; you get the picture. Well the same applies for the currency markets we refer to it as hedging using negative correlations, or simply one pair goes up when the other pair goes down and vice versa. It is very important for any one involved in the forex market to understand this basic concept of risk management. This technique is used all the time by banks, and especially major international corporations that do business in other currency besides the dollar. This is simply a logical choice when you are trading multiple currency pairs to ensure that your trading account does not get depleted very rapidly.

Negative as well as positive correlations exist between all currency pairs and are susceptible to change based on the a variety of factors, and of course monetary policy in that country being one of if not the biggest influence. A trader should check the currency pair correlation often to ensure that there has not been any major changes in the way currency pairs are affecting each other. This can be done in any number of ways; most forex trading software packages include the ability to view historical and daily currency prices which will allow you to determine a correlation between currency pairs. In closing I highly recommend if you trade currency you become familiar with Correlation Coefficient between currencies pairs so hedge your positions and limit your market exposure for maximum profit.