What is the
spread?
The spread is the difference between the buy
and sell price.
Each currency pair has two prices, the first
is the bid price and the second is the ask price.
Ask price: It is the price at which the
purchase is executed.
Bid price: It is the price at which the sale
is executed.
What is a lot?
Trading in the currency market takes place
through specific quantities of contracts (lots). It indicates the number of
units that you want to buy from the currency pair and there are three different
types of contract quantities, namely:
Standard lot contract
Mini lot
Equals 10,000 units of the base currency.
Micro lot
Equals 1,000 units of the base currency.
What is a pip?
It is the smallest movement in the price of a
currency pair and is represented by the last decimal number in the price.
Example
If the EUR / USD exchange rate rises from
1.2360 to 1.2361, this means that the pair moved 1 pip (1 pip)
How is the pip
value calculated?
Point Value = (0.0001 ÷ Exchange Rate) x
Contract Size
Example
If the price of the dollar against the
Canadian dollar
USD / CAD =
1.2240
Point Value = (Standard Lot $ 100,000) x
(0.0001 ÷ 1.2240) = $ 8.16
Another example
If the price of the dollar against the euro
EUR / USD = 1.2560
Point Value = (Lot Standard 100,000 euros) x
(0.0001 ÷ 1.2560) = 7.69 euros
To convert euros into dollars
1.2560 x 7.96 = $ 10