korsaan, pips and spreads can have big impact on your profits

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Hi korsaan,

 

Last week we told you about how the value of a spread from your broker can have massive impact on your overall profits. This week we will go in to more detail about pips and spreads so that you can understand more about just how important they are to you.

The pip is the smallest measure of price move used in forex trading. For instance, if the currency pair EUR/USD is trading at 1.3000 and then changes to 1.3010, the pair is said to move by 10 pips. It is an acronym for Percentage in Point (pip).

In the wholesale market, currencies are quoted out to four decimal places, with the last placeholder called a point or a pip. A pip in most currencies is one/10,000th of an exchange rate or in USD/JPY, it is one/100th.

Spread on the other hand is the difference between buy (long) or sell (short) for a currency pair. The bid/offer spread is the difference between the buying (bid) and selling (offer) price. The ask prices are the immediate execution prices for quick buyers or traders and bid prices are for quick sellers.

Spreads affect the return on your trading strategy in a big way. As a trader your sole concern is buying low and transaction high. Wider spreads mean buying higher and having to sell lower. Even a half-pip lower spread can dramatically affect your profitability.

For example, if the quote between EUR/USD is said to be 1.2222/4, the spread equals 2 pips as the difference between 2 and 4 is 2. But if the quote is 1.22225/4, the spread is 1.5 pips. So spread is the primary cost of trading for you and any differences in them makes a big impact.

Although it may not seem like much of a difference to be trading with a 5 pip spread vs. a 4 pip spread, it can add up very quickly when you multiply it with how many trades you make and how much money you're trading. You will find the difference to be as high as 25% on your trading costs.

By now I am sure you can see the value of choosing your broker wisely, it really can have a massive effect on your profits so it is important to take the time to choose the right broker. If you remember last week we told you we thought Easy-Forex was the best in the industry thanks to their fixed 3-7 pip spreads and a minimum deposit of just $100.

 

We stand by that so if you haven't checked them out already then you should do so now. Click here to visit their site or click here to read our full review.

Next week we have some golden piece of advice about the one investment you can make to help you bring you in the big profitable trades every month for a long long time to come.

Good luck and happy trading!

The Instant Forex Income Team

www.instantforexincome.com

15 Newstead Court, Somersby Road, Nottingham, Notts NG5 4NF, UNITED KINGDOM

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