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Chapter 5, Part III. Fractions of the quote rate. Page 4

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 14, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Estimate the pip value for USD/CHF in terms of USD, if rate is 0.9500; 1.0000 ; 1.0500.

    Pipruit: Well, it’s an easy task:

    - for 0.95 pip value equals 0.0001/0.9500 = 0.000 105;

    - for 1.00 pip value equals 0.0001/1.0000 = 0.0001;

    - for 1.0500 pip value equals 0.0001/1.0500 = 0.000 095.

    Oh, it looks like I understand! When rate is 0.95 and below the parity (1.00), it means that CHF is more expensive than USD, USD in turn – cheaper. Sense, CHF pip value is greater in terms of USD. At parity they are equal. When rate is above the parity, say 1.0500, It means that each dollar costs 1.05 Swiss Francs and the pip value in dollar is smaller, because dollar itself is more expensive than the Swiss franc. Sounds too confusing and messy.​

    Commander in Pips: You’ve said everything correctly, but I would like to organize it in a more simple way, if you don’t mind.
    Pipruit:Sure, go ahead.​

    Commander in Pips: Pip value in terms of Base currency will become greater the exchange rate gets lower. Consequently, pip value will become lower as the exchange rate becomes higher.

    Pipruit: Cool!

    But, Sir, Will I have to do all these calculations every time when I enter or exit the trade on FOREX? ​

    Commander in Pips: No. I can say even more. You will never have to do this manually. Ha-ha-ha… Because modern trading terminals do this automatically and in a fraction of a second.

    Pipruit: What the deuce…​

    Commander in Pips: Your disappointments are in vain, because you need to know how to do it anyway. This skill is irreplaceable, and you may need it in different tasks. For example, if you will build your own trading systems and experts.

    Pipruit: Well, thanks then.​



    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon.


    Note: FPA ranks are earned in the battles against scam, not in the classroom.
     
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