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Pipsing and scalping.

I keep hearing about pips and scalping. What are they?
Pips are the smallest measurement of change in the value of a currency in the Forex. These are often seen when reading reports about the movement of currency pairs and in the spreads of online brokers.

For example, for the pair EUR/USD 1.3680, the pip is at 4 places to the right of the decimal. This means that the quote will only change if the value of the currency pair moves by at least 0.0001 which is equal to 1 pip. If the quote suddenly becomes EUR/USD 1.3682, then we can describe that as a movement of 2 pips.

The value of a pip can differ depending on the currency pair. For the quote USD/JPY 101.53, one pip is equal to a change of 0.01 since the quote only extends to 2 places to the right of the decimal.

While bigger profits come from larger pip changes, some Forex traders choose to employ a strategy called scalping which connotes taking advantage of small differences in pips. Since currencies move up and down several times each day, scalpers can profit by opening positions and immediately closing it once it changes by even the fewest pips. While in this strategy the profits made on each trade are small, if done multiple times in a single day, it could collectively lead to larger profits.

Scalping has become more popular because of the availability of tools such as stop-loss and take profit orders. Through these, a position can automatically be closed once a certain value is passed. This allows traders to reduce risk and immediately reign in profits.

 

Created by : AccountGuru
Published : 24 Mar 2014

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