What are pips?

It's all about the pips! When trading currency a profit or loss is measured in pips. For example, one pip movement when trading the AUD/USD pair is equal to a move from US$.9850 to US$.9851. To simplify, one Aussie dollar is equal to 98.51 US cents.

On the GO Markets platform you will see the price of each currency will be expressed to the 5th decimal place. So if we look at EUR/USD, one Euro is equal to US$1.39545 - It's important to understand the fifth decimal place is not a pip, rather 1 tenth of a pip - or what the Meta trader 4 platform refer to as a point. Lets establish now what each pip is worth.

What are Contract Values?

Contract values are used to express the amount of currency you would like to buy or sell. One Standard contract denotes 100,000 of the base currency, and 10 per pip of the second named currency (terms currency).

You can choose to do multiple standard contracts or many providers such as GO Markets allow you to trade much smaller than a standard contract. For example, a mini contract which is worth 10,000 of the base currency and 1 per pip of the terms currency.

An exception to these contract values need to be made when trading Japanese Yen pairs where each pip fluctuation on a standard contract will equal JPY1000. It is also imperative to understand which currency you are buying and which you are selling. For example when buying 'long' the AUS/USD pair, you believe the first currency value will appreciate against the second. Or you may have a bearish view of the Australian currency, hence decide to sell or 'short' the Australian dollar against the USD dollar which means you believe the first currency will depreciate against the second.

This article has been taken from Introduction to Foreign Exchange from GO Markets. For a free copy of the e-book, you can sign up here.