The Professional Forex Trading Course - Lesson 4 - Forex Basics Part 2

Currency Exchange Rates

In pairs first currency is called Base Currency and the second currency is called Quote Currency.

Currencies are quoted in pairs and mostly in 4 decimal places. 4th digit is called PIP and 5th digit called fractional PIP. In this example there are 1 PIP movement.

The base currency always has a value of 1. In this case, 1 Euro is equivalent to 1.2712 US Dollars at that point in time. So, if you want to buy 1 Euro, you would have to pay 1.2712 US Dollars. If you want to sell 1 Euro, you would receive 1.2712 US Dollars.

While all other pairs are quoted to 4 decimal places (1 pip = 0.0001), The JPY (Japanese Yen) PAIRS ARE QUOTED TO 2 DECIMAL PLACES (1 pip = 0.01).
So, this quote tells is that 1 US Dollar is equivalent to 105.71 Japanese Yen.
PIP (Price Interest Point)

• Pip is the smallest change in value for any given forex quote.
• For all non – JPY forex pairs, 1 pip represents the 4th decimal place of the quote. E.g When EUR/USD moves from 1.2712 to 1.2713, it is a movement of 0.0001 or 1 pip
• For JPY forex pairs, 1 pip represents the 2nd decimal place of the quote. E.g. When USD/JPY moves from 105.71 to 105.72, it is a movement of 1 pip.

Lot Sizes
EUR/USD - 1 Standard Lot = 100,000 & 1 Pip = 0.0001
USD/CHF - 1 Standard Lot = 100,000 & 1 Pip = 0.0001
GBP/USD - 1 Standard Lot = 100,000 & 1 Pip = 0.0001
USD/JPY - 1 Standard Lot = 100,000 & 1 Pip = 0.01
GBP/JPY - 1 Standard Lot = 100,000 & 1 Pip = 0.01
AUD/USD - 1 Standard Lot = 100,000 & 1 Pip = 0.0001
1 Standard lot = 100,000 of the base currency. E.g When you buy one standard lot of EUR/USD, you are buying 100,000 Euros with US Dollars.

Lot Sizes
Standard Lot = 100,000 Units
Mini Lot = 10,000 Units
Micro Lot = 1,000
Nano = 100
Lets say you are using MT4 platform for forex trading. So your trading profits will be depending on the Lot Size you chose at the time of buy or sell. E.g. if you trade 100,000 units then you should select 1 in lot size, if you trade 50,000 units then you should select 0.5 in lot size, if you trade 10,000 units then you should select 0.1 in lot size respectively in MT4 Platform.

Calculating Forex Profits or Losses
Actually the profits you make or loss you make, is equals to the number of PIPs you capture.

Formula: No. of Pips X No. of Lots X $Value Per Pip Per Standard Lot.

$ Value Per Pip Per Standard Lot is USD 10 or about USD 10 for most of the actively traded pairs (i.e. EUR/USD, GBP/USD, AUD/USD). To get latest rate of currency pair, go to https://www.mtpredictor.com/pip-value-table to find out $ value per pip per lot for all major currency pairs. REMEMBER, on the website, the vale is for mini lot therefore you need to multiply by 10 to get standard lot size.

** Pics are collected from google.