Hey, do you know the difference between a gambler and a speculator? It’s actually a line line of difference. One who is known to take a gamble on sports, horse racing, visiting casinos is branded as a gambler. The other type of people one who do some analysis and know what they are doing on forex trading, stocks, property etc is known to be a speculator. Today I brought this topic up is of course not to test your intelligence, but to alert our forex traders that you are pure speculators and not gamblers!

Often people will mix up gambling with forex trading, true that they may seem like friends, but definitely not the same family. However, they have some similarities, both have the possibility of losing more money and winning more money. They also have uncertainties over the future. The difference here is that gambling does not have a set of data to analyze and you can’t increase your chance of winning, it’s pure luck. For forex trading, you will need to analyze the past history using forex indicators etc, though it does not confirm a sure win. But it will definitely increase the chance of success. I know of many successful forex traders who make a living out of it(I’m one of them ), but have you heard of gamblers making a living? I only know that they have to owe a lot of debts in their lives.

Some of the beginners who has just starting to learn forex think that they can make quick and easy profits from the forex market. This is totally not true and forex trading is not gambling. Firstly you must have the right mindset if you decide to embark on the currency trading journey, treating this as your own legal business. Secondly, your trading decisions must not be gut feelings, you do not think or feel whether the price will up or down. Thirdly, you must only be dependent on your forex strategy and forex trading systems, and not luck!

Make use of all the resources you need to become a successful trader, there is no easy way out and you must learn it through experience. I can give you all the forex tips and strategies you want, but you will really need to get tough with the forex market to learn valuable stuffs. But no worries at all, I will be here to give you all the help that you need in this business.

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The most common increment of currencies is the PIP. If the EUR/USD moves from 0.9550 to 0.9551 that is one Pip. A pip is the last decimal place of a quotation. The Pip or POINT as it is sometimes referred to depending on context is how we will measure our profit or loss.

As each currency has its own value it is necessary to calculate the value of a pip for that particular currency. We also want a constant so we will assume that we want to convert everything to US Dollars. In currencies where the US Dollar is quoted first the calculation would be as follows.

Example JPY rate of 116.73 (notice the JPY only goes to two decimal places, most of the other currencies have four decimal places)

In the case of the JPY 1 pip would be .01 therefore

USD/JPY: (.01 divided by exchange rate = pip value) so .01/116.73=0.0000856 it looks like a big number but later we will discuss lot (contract) size.

USD/CHF: (.0001 divided by exchange rate = pip value) so .0001/1.4840 = 0.0000673

USD/CAD: (.0001 divided by exchange rate = pip value) so .0001/1.5223 = 0.0001522

In the case where the US Dollar is not quoted first and we want to get to the US Dollar value we have to add one more step.

EUR/USD: (0.0001 divided by exchange rate = pip value) so .0001/0.9887 = EUR 0.0001011 but we want to get back to US Dollars so we add another little calculation which is EUR X Exchange rate so 0.0001011 X 0.9887 = 0.0000999 when rounded up it would be 0.0001.

GBP/USD: (0.0001 divided by exchange rate = pip value) so 0.0001/1.5506 = GBP 0.0000644 but we want to get back to US Dollars so we add another little calculation which is GBP X Exchange rate so 0.0000644 X 1.5506 = 0.0000998 when rounded up it would be 0.0001.

By this time you might be rolling your eyes back and thinking do I really need to work all this out and the answer is no. Nearly all the brokers you will deal with will work all this out for you. They may have slightly different conventions but it is all done automatically. It is good however for you to know how they work it out. In the next post we will be discussing how these seemingly insignificant amounts can add up.

So now we know that the FX market is the largest in the world and that your broker or institution that you are trading with is collecting quotes from a centralized feed or individual quotes comprising of interbank rates. So how are these quotes made up. Well, as we previously mentioned currencies are traded in pairs and are each assigned a symbol. For the Japanese Yen it is JPY, for the Pounds Sterling it is GBP, for Euro it is EUR and for the Swiss Frank it is CHF. So, EUR/USD would be Euro-Dollar pair. GBP/USD would be pounds Sterling-Dollar pair and USD/CHF would be Dollar-Swiss Franc pair and so on. You will always see the USD quoted first with few exceptions such as Pounds Sterling, EuroDollar, Australia Dollar and New Zealand Dollar. The first currency quoted is called the base currency. Have a look below for some example.

Currency Symbol Currency Pair

EUR/USD Euro / US Dollar

GBP/USD Pounds Sterling/ US Dollar

USD/JPY US Dollar / Japanese Yen

USD/CHF US Dollar / Swiss Franc

USD/CAD US Dollar / Canadian Dollar

AUD/USD Australian Dollar / US Dollar

NZD/USD New Zealand Dollar / US Dollar

When you see FX quotes you will actually see two numbers. The first number is called the bid and the second number is called the offer (sometimes called the ASK). If we use the EUR/USD as an example you might see 0.9950/0.9955 the first number 0.9950 is the bid price and is the price traders are prepared to buy Euros against the USD Dollar. The second number 0.9955 is the offer price and is the price traders are prepared to sell the Euro against the US Dollar. These quotes are sometimes abbreviated to the last two digits of the currency such as 50/55. Each broker has its own convention and some will quote the full number and others will show only the last two. You will also notice that there is a difference between the bid and the offer price and that is called the spread. For the four major currencies the spread is normally 5 give or take a pip (will explain pips later)

To carry on from the symbol conventions and using our previous EUR quote of 0.9950 bid, that means that 1 Euro = 0.9950 US Dollars. In another example if we used the USD/CAD 1.4500 that would mean that 1 US Dollar = 1.4500 Canadian Dollars.