Whats are pips and spreads?

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Whats are pips and spreads in forex trading? What is the importance of Pips and spreads in trading?

 

A pip is a number value. In the Forex market, the value of currency is given in pips. One pip equals 0.0001, two pips equals 0.0002, three pips equals 0.0003 and so on.

The spread is the difference between the buy price and the sell price. Two prices are given for a currency pair. The spread represents the difference between what the market maker gives to buy from a trader, and what the market maker takes to sell to a trader.

 

Thanks for the useful information!

 
Shawnmichal:
A pip is a number value. In the Forex market, the value of currency is given in pips. One pip equals 0.0001, two pips equals 0.0002, three pips equals 0.0003 and so on. The spread is the difference between the buy price and the sell price. Two prices are given for a currency pair. The spread represents the difference between what the market maker gives to buy from a trader, and what the market maker takes to sell to a trader.

Very good & useful explanation about pips and spread. This will surely helps any new trader.

 

Could you tell more about 0.0001? Does this mean for example 1,62995 and 1.62996 = 0.00001?

 

Pips (points) is the smallest unit of price for any foreign currency, also referred to as points and Spread is the difference in pips between the Bid and the Ask quote. We should understand them and the terms of forex, not only know.

 

A pip (price in points) is one of the smallest denominations of that currency. For most currency pairs, the fourth decimal place is the pips column. For jpy based pairs, the second decimal place is the pips column.

E.g.

EUR/USD

1.34567

The 7 is the 5th decimal place and is 1/10th of a pip.

The 6 is the 4th decimal place and is the pips column

The 5 is the 3rd decimal place and is the tens of pips column

The 4 is the 2nd decimal place and is the hundreds of pips column

The 3 is the 1st decimal place and is the thousands of pips column.

If you're in a trade and the 1 moves, you get to retire lol.

Spread (bid-ask spread) is simply the difference between the buy side of the currency pair and the sell side of the currency pair.

E.g. Buy @ 1.3456

Sell @ 1.3455

The difference here is 1 pip.

Spreads differ on each currency pair at different times of day due to liquidity in the marketplace. This means at liquid times, depending on your broker you can have negative spreads, where there is no spread cost. At other times you can get wider spreads - such as just before the weekend.

When the banks rollover at 10pm UK time, the spreads typically widen for up to 15 minutes.

Hope that answers your question

 

The term PIP stands for Percentage in Points and equals one hundredth of one percent. A move from 100 to 100.01 would represent a one PIP advance, for example. A single PIP, in other words, is an extremely small change and is usually inconsequential in most cases. The price of most financial assets, whether bonds, stocks or options, is not quoted in such small increments, and therefore a jump of a single PIP is usually impossible except in the case of currency trading.

Whereas spread means formed by buying and selling the same stock at different strike points. Option spreads can be complex, with their colorful names adding to the complexity (iron butterfly, iron condor, etc). To learn more about option spreads

 

In easy language we can say that last decimal point of any trading pair is called pips. and spread is a difference between ask and bid price of or buy and sell point , This spread is a shape of commission that broker charges over every position we open for trading.

 
Mike Bor:
Thanks for the useful information!

You can find more useful information about the basics of forex at Faq - ForexSanity . Actually, there is more to spreads than just the defintion. Spreads affect our profit making ability while trading as it seems

 
Shawnmichal:
A pip is a number value. In the Forex market, the value of currency is given in pips. One pip equals 0.0001, two pips equals 0.0002, three pips equals 0.0003 and so on. The spread is the difference between the buy price and the sell price. Two prices are given for a currency pair. The spread represents the difference between what the market maker gives to buy from a trader, and what the market maker takes to sell to a trader.

Your post is really down to earth. There are no complications in the explanation. Thank you for this.

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