User:Diza/pips

Buying a loaf of bread for 2 dollars is the same as selling 2 dollars for a loaf of bread. In other words, it is nothing more than an exchange. Money is the medium of exchange, and so, everything is priced in terms of money.

Price Interest Point
A pip is the unit of measurement for the smallest change in the price of a currency or currency pair. In most cases, a pip is equal to .01% of the quote currency, thus, 10,000 pips = 1 unit of currency A pip is equal to .0001 of the base currency, for most currencies. In U.S. dollars, it is equal to 1/100 of a cent. Thus, 10,000 pips = 1 dollar. Most pairs have a 5 digits set, such as USD/NIS 3.7978

A well known exception to the value of a pip is the Japanese yen. Because the yen has much less value than the United States dollar, a pip is considered to be only 1% of the yen. (Currently, 86 yen ≈ $1.) Thus, most currency quotes are expressed by 4 decimal digits, and the Japanese yen is expressed to 2 decimal digits. The pip is the smallest value quoted by brokers and dealers. (Sometimes you will see quotes in the news that have 5 or 6 significant digits. These quotes were probably transacted by banks for large amounts of currency, but the smallest quote given by almost all forex brokers is the pip.

For example: USD/CAD bid price of 120.00 and an ask of 120.05. Thus, the spread would be equal to 0.05, or $0.0005.

Spread
The sell price for the trader is always lower than the buy price, because that’s how forex dealers make money. The spread can range between 2 and 12 pips depending on the currency and the brokerage you are using. So if you were to buy currency, then immediately sell it back to the same dealer, the dealer would make money, and you would lose money. Thus, the spread is the transaction cost of trading currency. These changes between brokers supplying the service for the trader and by Market Makers which change the spread according to volatility and liquidity in the current situation.(weekends have larger spreads)

For major currencies, the spread is usually about 3 to 5 pips or more, depending on the dealer. For less frequently traded currencies, or for major currencies during high volatility or low volume, the spread can be much greater. Although many brokers advertise 2-pip spreads, you will rarely see spreads less than 4 pips.

The actual transaction cost is determined not only by the spread, but also by the lot sizes of currency trades. Most regular accounts trade in lots of 100,000 units, and so a pip is worth 10 units of currency. Most mini-accounts trade in lot sizes of 10,000 units, and so a pip is worth 1 unit of currency. If the quote currency is the USD, then a lot size in a regular account is $100,000 and each pip difference is $10

Spread Cost
The bid price is usually expressed to 4 significant digits after the decimal point, which represents the number of pips. The ask price is usually expressed as the significant digits that are different in pips from the bid price. For instance, you may see a quote such as the following:

EUR/USD 1.3522/24

This means that if you wanted to sell Euros for dollars, you would get $13,522.00 for 10,000 Euros, but if you wanted to buy Euros with U.S. dollars, then you would have to pay $13,524.00 to buy 10,000 Euros.

The difference is 2 pips, which is the spread. It's cost is 2[pips]*(leverage*security)[lot size]. For example: NIS/US 3.7978/8178 ,leverage 100, base 2500$-->Minimal Spread cost=200/10000*25$[minimum]   =0.5$