A "pip" is the smallest increment in any currency pair. In EUR/USD, a movement from .8951 to .8952 is one pip, so a pip is .0001. In USD/JPY, a movement from 130.45 to 130.46 is one pip, so a pip is .01.

CALCULATING THE WORTH OF A PIP

How much in dollars is this movement worth, for example, per 10,000 Euros in EUR/USD? How much is one pip worth per 10,000 Dollars in USD/JPY? We will refer to the size, in this case 10,000 units of the base currency, as the "Notional Amount". The formula for calculating a pip value is therefore:

(one pip, with proper decimal placement / currency exchange rate) x (Notional Amount)

Using USD/JPY as an example, this yields:

(.01/130.46) x USD 10,000 = $0.77 or 77 cents per pip

Using EUR/USD as an example, we have:

(.0001/.8942) x EUR 10,000 = EUR 1.1183

But we want the pip value in USD, so we then must multiply EUR 1.1183 x (EUR/USD exchange rate): EUR 1.1183 x .8942 = $1.00

This is in fact a phenomenon you will see with any currency in which the currency is quoted first (such as EUR/USD or GBP/USD): the pip value is always $1.00 per 10,000 currency units. This is why pip (or "tick") values in currency futures, where the currency is quoted first, are always fixed.

Approximate pip values for the major currencies are as follows, per 10,000 units of the base currency:

USD/JPY: 1 pip = $.77 (i.e. a change from 130.45 to 130.46 is worth about $.77 per $10,000)

EUR/USD: 1 pip = $1.00 (.8941 to .8942 is worth $1.00 per 10,000 Euros)

GBP/USD: 1 pip = $1.00 (1.4765 to 1.4766 is worth $1.00 per 10,000 Pounds)

USD/CHF: 1 pip = $.59 (1.6855 to 1.6866 is worth $.59 per $10,000)

Spread

The spread is the difference between the price that you can sell currency at ( Bid) and the price you can buy currency at ( Ask). The spread on majors is usually 3 pips under normal market conditions.

Market Hours

The spot Forex market is unique to any other market in the world; trading 24-hours a day. Somewhere around the world a financial center is open for business and banks and other institutions exchange currencies every hour of the day and night, only stopping briefly on the weekend. Foreign exchange markets follow the sun around the world, giving traders the flexibility of determining their trading day and the ability to take advantage of global economic events.

FOREX or The Foreign exchange rate market is an international market where various currency exchange transactions take place; this is in the shape of simultaneously buying one currency and selling another. The most commonly traded currencies are referred to as "Majors"; over 85% of daily transactions on Forex trading involve the Majors. These seven currencies are the US Currency (Dollar, USD), Japanese Yen (JPY), Euro (EUR), British Pound (GBP), Swiss Franc (CHF), Canadian Dollar (CAD) and Australian Dollar (AUD). The Forex system in operation today was established in the 1970s when free currency exchange rates were introduced, this period also saw the US Dollar overtake the British Pound as the benchmark currency. Prior to this and in particular during World War II, exchange rate remained more stable.

Forex trading in simplest terms is the buying of one currency and the selling of another. Forex trading, also referred to, as "FX" is open to corporations, small businesses, commercial banks, investment funds and private individuals, it is the largest financial market in the world averaging a daily turnover of over $1 trillion dollars, making it a diverse and exciting market. It is a 24-hour market enabling it to accommodate constant changing world currency exchange rates . According to New York time, trading begins at 2.15pm on Sunday in Sydney and Singapore and progresses through to Tokyo at 7pm, London at 2am and reaches New York at 8am. This leaves investors free to respond to global political, economic and social events when they take place, day or night.

Unlike trading on the stock market, the forex market is not conducted by a central exchange, but on the "interbank" market, which is thought of as an OTC (over the counter) market. Trading takes place directly between the two counterparts necessary to make a trade, whether over the telephone or on electronic networks all over the world. The main centres for trading are Sydney, Tokyo, London, Frankfurt and New York. This worldwide distribution of trading centres means that the forex market is a 24-hour market.

Http://www.forex.comli.com

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