The price movement for the currency is measured in “PIPs”, (Price in Points) and sometimes is also referred to as ‘points’.  The pip is the digit on the far right: 1.2345, so if the currency moved by 150 pips the new figure would be 1.2495. It is important to note that the YEN only has 2 places to the right of the decimal point, rather than 4 places to the right as the other currencies (108.01).
These tiny increments in the currency movements are enhanced by the enormous leverage available.

Dealing Spread

The spread is the difference between the Bid and the Ask. Normally trading platforms do not charge commission or brokerage as they are compensated for their service via the spread, (this is different to the equity markets where brokerage plus the spread is charged). Most trading platforms offer the option of fixed spreads for investors who would prefer to know exactly the cost of their position at all times, as regular spreads can change at any time. Make sure you factor in this cost when calculating out your profit and loss for your trades. Some platforms remove the spread and charge you a fixed commission (for example, it may be $0.60 for every $1,000 traded), which is only payable on winning trades.

Lot Sizes

Forex is traded in ‘lot’ sizes, with the smallest lot size in the Standard Account (sometimes referred to as a Regular Account) being a minimum of 100,000 currency units, and moving up from there is 200,000, 300,000, etc.  Mini Accounts have lot sizes as small as 10,000 currency units. On a typical day the liquid major currency pairs can fluctuate 100 pips (a full point, 0.0100), which is the value of $1,000 on a 100,000 lot size. Not bad for a day’s work, (as long as the trade is in your direction!)

Calculating Pips

4 Decimal Place Currencies:  If you are trading the standard lot size of 100,000 you simply remove four zeros to determine how much each pip is worth. So if you were trading 1 standard lot of 100,000 the value per pip would be $10.

2 Decimal Place Currencies: If you are trading the standard lot size of 100,000 you simply remove two zeros to determine how much each pip is worth. So if you were trading 1 standard lot of 100,000 the value per pip would be 1,000.  When the base currency is not the US Dollar, for example if it were the Yen, you then need to convert the ¥1,000 into US Dollars – to do this you simply divide the ¥1,000 by the current rate for the Yen. (e.g.: ¥1,000 divided by 108.50 = US$9.21 per pip).

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