Check out this excellent Forex Pips Guide from a cool forex site.
While you start searching for FX trading websites online, you will quickly see references to the forex pip. Your gains and losses will be considered in pips. another thing that is measured in pips is the spread, the variation between the bid and ask prices which is the major cost of forex and how the brokers create their wealth. So it is undoubtedly very  crucial to be familiar with what is a pip.

The acronym stands for Percentage in Point (otherwise, price interest point). It is the least increment of changes in rates. It allows us to determine a climb or drop in currency values in percentage terms as a replacement for of dollars and cents.

Why do we need to talk in pips? The reason for this is simple. In the forex market there is no common currency in which to state prices. The United States Dollar may be the most generally traded currency but it is not involved in all forex trades. If you are trading cross rates, i.e. two extra currencies such as EUR/GBP or any other grouping that does not comprise USD, it would not make any sense at all to express your gains and losses in terms of USD. As a substitute, we require something that is a small percentage of the value of whatever currencies we are doing the trade with.

This just means that he monetary price of a pip varies according to the currency pair. Even if you are using the best forex software you have to have a sound understanding about pips.

generally currencies are quoted to 4 decimal points. For illustration you might notice the bid price for EUR/USD quoted at 1.3641 and ask price 1.3645. The difference (the spread) is 0.0004 or 4 pips. In this case a pip is 0.01% of a lot.

therefore if the lot size was $100,000, one pip would be worth US dollar10. Similarly for a lot size of $10,000, one pip would be USD1.

That is the value of pips when the US $ is the quote currency, i.e. EUR/USD , GBP/USD etc. But if the quote currency is something else, one pip is commonly 10 units of that currency (e.g. 10 euros or 10 pounds). Or if your lot size is 10,000 units, one pip is 1 unit (1 euro or 1 pound).

The exception is the Japanese yen which has a very low unit value than most currencies (you get a lot of yen to the dollar). Because of this, the the Japanese Yen is simply quoted to the second decimal point. You might observe a price USD/JPY 110.12. In this instance one pip is 0.01 or 1% but in yen, not dollars. So the pip value is JPY 1000 which at that price would be worth US $11.012.

These figures can be confusing when you are a beginner at currency trading. So it is better to start trading consistently with just one currency pair.

If you are trading one pair repeatedly daily you will soon get used to how much a pip means in terms of your actual profits and losses in your account. You will identify how much one pip is worth in dollars or in your own currency.

But as soon as you are trading a number of different forex pairs, you have to deal with pips of different values. If you get baffled, you could be taking bigger risks than you considered or closing trades with less gains than you thought. It is much easier to deal with just one pair at first until you have a sound awareness of trading practices and forex pip rates.

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The currency trading market has a number of factors that make it only one of its kind. Currency exchange has been considered as almost pure competition that can happen to market, even though the world wide banks and financial institutions attempt to have a power over it and manipulate it. Nevertheless what makes it so extraordinary, and why might you think that you can make more money on the currency exchange market than other forms of asset trading such as stock trading? Why do automated forex methods like Forex Megadroid reported to have built a fortune to many people? We are going to find out.

Trading Volume
The total cash traded on the forex market every day is enormous. The normal daily turnover all over the world is approximately US$3.5 trillion, according to a study in 2007 December by International Settlements Bank. The largest Fx trading center is in UK London, followed by New York and Tokyo, Japan. However, the US$ is the largest traded currency in the global currency exchange market.

Liquidity
The liquidity of a commodity is its ease of conversion to money without changing  its value. Money is already money, hence it is more liquid than any other commodity. That means Fxit is extremely easy to do the trading.

World Wide Market
Currency is not traded in a particular location but across the globe. This means that, even though it is influenced by national events in the biggest financial powers, the effects are balanced out. Dollar does not have absolute value: a currency’s value can only be measured comparing with a different currency. Hence if one currency rate falls, another will rise.

Compare this with the stock exchange where it is possible for the value of every company’s stock to drop at the same time. All you can do in a major stock market crash is to withdraw your investment. But in forex trading, you can switch from the falling currency to the rising currency and still make money.

24 Hours Market
Forex can be traded in different parts of the world 24 hours a day, five days a week. The FX trading market opens in Sydney, Australia, where it is Monday morning, and closes at 22.00 hours UTC Friday in New York, where it is Friday afternoon. So whatever time of day or night you love to trade, you will have the opportunity, unless your only free time is on weekends.

Market Leverage
What you mean by Leverage? Leverage is where a small amount of commodity can be used to control a larger amount. In forex trading, leverage is connected to the practice of trading on margin. You put in a small amount in your brokerage account and your broker lends you the rest, so that you don’t have to put up the whole value of your position. Example, you could invest USD400 to control US$4000.

Moreover you also have the ability to trade in various forex pairs in the market. Currency trading provides more leverage than stock or futures trading. You may be able to manage up to two hundred times your investment, depending on the Forex broker. The more the leverage, higher is your chance of bigger returns, but of course, there is also the risk of bigger losses. If you are just starting out you will not necessarily want to take the maximum leverage on the Currency trading market.

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