As a forex trader, you’re going to beg getting pretty intimate with numbers in a big way. You will live numbers, breathe numbers, eat and sleep numbers. But that’s just the way it is. The more data that you have, the better tracking that you can do. You will need to make sure that you understand some key concepts before you plunge in too deeply into forex.
One concept that we wanted to address right now is the difference between pips and pipettes. You’ll see these terms a lot as a new trader, and they’re very, very important.
A pip is a unit of measurement used by traders to show the change in value between your currency pairs. A pipe is the last decimal place of a quotation. Most currencies are expressed in values out to four decimal places — except for the Japanese yen. It’s special in that it only goes out two places.
So let’s say that EUR/USD moved from 1.2250 to 1.2251 — that’s one pip. If it moved from 1.2250 to 1.2259, that would be NINE pips. That’s a pretty good deal!
But what about those pipettes? We’re not trying to bring you back to chemistry class or anything like that. We’re just saying that you might want a little more precision when you’re looking at gains.
You will need to go to the pipette, which are fractional pips. Let’s use the same EUR/USD pair from earlier.
What if your pair went from 1.22503 to 1.22504? That’s one pipette. Notice that we went out to five decimal places. That’s because we are getting the quote for the pipette value. Most of the time you’ll probably want to just deal with pips, but it can be helpful to also know if you’re making any headway in terms of pipettes as well. It can make the difference between staying in a trade and backing out.
Now that you know more about forex, do you think you’re ready to start trading? Hold on there — there’s still a lot more ground to cover. We say this a lot in forex land, but if you really are very new to forex getting a demo account is way smarter than just rushing in. Even if you have previous investing experience, a forex demo account is truly the way to go. It’s not the end of the world if you spend a few months learning your forex platform and your demo account. It’s better to lose your whole demo account and just have to start over than losing real money and having problems getting into the game at a later time.