PIP

Pips and 'pips values' represent one of the most misunderstood concepts in Forex trading. Beginners, especially, often have trouble grasping the idea behind pips but, a solid understanding of pips is crucial to successful Forex investing.

Hopefully you're already familiar with the concept of 'basis points'. One basis point is equal to one-hundredth of one percent, and represents the smallest increment of change measured for any financial instrument. For example, with interest rates, if the rate rises from 9.50 percent to 9.51 percent, then it has risen by one basis point.

Pips are the Forex market's version of basis points. Let's say that the exchange rate for the EUR/USD pair move from 1.4465 to 1.4468. This movement represents a shift of 3 Pips, and may be good or bad depending on which currency you are holding.

Here's the catch, though. Notice that the shift took place on the 4th decimal, which is the ten-thousandths place, or 1/10,000 of a percentage point? You have a shift of one ten-thousandth instead of one one-hundredth.

The reason for this is that most currencies (with the exception of the Yen) are quoted out to four decimal places. This means you get to take advantage of even the most minute shifts as you trade on high volume.

In order to calculate Pips for the common, four decimal currency pairs, you must divide the value of 1 Pip by the exchange rate:

1 Pip = 1/10000th / exchange rate

Now, what happens when you are dealing with the Japanese Yen? In this currency pair, we find an exception to the rule because the Yen is quote out only to the hundreds place, or 1/100.

For the USD/JPY pair (or vice versus), your formula would be:

1 Pip = 1/100th / exchange rate

Now that you know how to calculate Pips for any currency pair, you must look at what an actual Pip is worth to you in real dollar terms. This value is known as “pips value'. In order to do this, we must bring 'lot size' into the equation.

If you purchase a standard lot of 100,000 pairs of EUR/USD at 1.4465, your formula will be as follows:

Pip Value = (0.0001 / 1.4465) x 100,000 = 6.91

So, a pip at this exchange rate is worth 6.91 Euro. Don't look for exact numbers here. What you need to pay attention to is the fact that '6.91' represents the average gain or loss per change in pips.

In other words, a fluctuation of 2 pip from 1.4465 to 1.4467 isn't going to raise your profit or loss by a full Euro or more. Try doing the calculation for a 2 pip rise, and you'll see that your pips value goes up only to 6.192.

I recommend getting comfortable with these basic calculations first, and then moving on to the calculations of actual profit and loss, which will require you to factor in bid price and ask price.

Also, remember that your online broker usually calculates pip and pips values for you, and you don't have to know how to do the math. It's just good business to be able to do it yourself...

Spot and forward trading

When you trade foreign exchange you are normally quoted a spot price. This means that if you take no further steps, your trade will be settled after two business days. This ensures that your trades are undertaken subject to supervision by regulatory authorities for your own protection and security. If you are a commercial customer, you may need to convert the currencies for international payments. If you are an investor, you will normally want to swap your trade forward to a later date. This can be undertaken on a daily basis or for a longer period at a time. Often investors will swap their trades forward anywhere from a week or two up to several months depending on the time frame of the investment.
Although a forward trade is for a future date, the position can be closed out at any time - the closing part of the position is then swapped forward to the same future value date.

Understanding the Relationship Between Domain Names and Hosting

Selecting a domain name can be a bit overwhelming since domain registrars often offer far more services than just domain names. Many offer "hosting" as well, so it helps to understand the relationship between domain names and hosting. Domain names and hosting are two completely separate products, but in the effort to sell the products together, domain registrars often just confuse people.When you purchase Web site hosting, you are basically renting a folder on a computer (called a Web server) that is connected to the Internet. You pay a company a monthly or yearly fee to keep your Web site files online and safe from hackers and other online "bad guys." Although technically, you might be able to host a site yourself, the $10 or $20 a month you spend on hosting is money well spent. Keeping a Web server alive and well is not a trivial exercise, so leave this task to the techies who like that kind of thing.It is important to understand the relationship between Web site hosting and domain names. A domain name basically points to a specific folder on a specific Web server. You can buy a domain name without buying hosting. Many people buy domain names long before they get around to creating a Web site. As soon as you think of a good name, spend the $8 and just buy the domain, so someone else doesn’t get it.Until you put up a site, the domain name points to a "parked page." This page is created by the domain registrar as a sort of holding spot until you buy hosting and get your site online. The parked page lets other people know that the domain isn’t available anymore. After you develop a site, get hosting, and put your Web site files in your folder on the Web server, you change your domain to point to the site.Note that you also can point more than one domain to the same Web site. If you decide to do this, you do not need to buy more hosting. Here are some questions to ask before you buy additional hosting.1. Do you want another Web site? (A completely different site with different files.) For example, two separate URLs have two different domains, are located in different folders, and are made up of completely different files.2. Do you want another domain name to point to the site you already have? For example, you might have two URLs point to one place. In that case, it is one folder with one set of files on the server, yet two domains point to it.If the answer to the question is 2, you do not need to purchase another hosting account. The files are already there in the folder. Generally, your hosting company should not charge you to point another domain to the same site. Hosting companies don’t care how many domains you have pointing at a site. However, they do care if you have more than one Web site and will charge you accordingly.