Pip stands for "percentage in point" and is also referred to as points. A pip is the smallest unit of price for a currency. It's the last decimal point in exchange rates or currency pairs.

If you look at the values of the currency pairs, most of the prices are quoted to the fourth decimal point in the forex market. Hence, for them the pip is 0.0001. For example, EUR/USD might be bid at 1.1914 and offered at 1.1917. In this example we can see that the spread is 3 pips wide. The Japanese Yen (JPY) is an exception. USD/JPY is quoted only to two decimal places. Hence, the pip is 0.01. By using the concept of pips, you can calculate profit/loss in forex trading. 

When you buy and sell a currency pair, you don't do so for a single unit of the base currency. The currencies are traded in lots. There are three types of lots used commonly depending upon the type of forex account that you have opened. These are:

Standard Lot: 1 lot = 100,000 units

Mini Lot: 1 lot = 10,000 units

Micro Lot: 1 lot = 1,000 units

A beginner may want to open a mini account where he/she may have mini or micro lots to trade with. These accounts typically need $200 to $1000 to start with. The standard lots can be traded with larger accounts. 

In a micro lot, the profit/loss will be $0.10 per pip. In a mini lot, the profit/loss will be $1 per pip, whereas in a standard lot the stake is of $10 per pip. So, the smaller the lot size, smaller will be the profit but also the loss. Hence, the reason why beginners prefer to start with mini lot or may be even micro. 

In the most simple terms, spread is defined as the difference between the bid price and the ask price. This is how brokers make their profit. A good broker is one that gives low spreads. Wide spread means high ask price and low bid price. This results in paying more when you buy and getting less when you sell. Hence, its difficult to make a profit.

Leverage is the ratio of investment to actual value. Some common leverage ratios are 1:20, 1:40, 1:50, 1:100. The leverage of 1:100 means a trader can buy a Forex contract of $1000 by paying $10. 

This was the case of profit. You can even incur loss the same way. Leverage is not a way to minimize your losses. So, when you want to open your online forex account, you may want to ask your broker as to how much leverage he'll be providing or you can try Forex Automation Software. The leverage, like lot size, depends upon the type of forex account you open.

 

 

 

 

 

 

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