What Is A Tick or A Pip and How to Calculate It?

If the currency pair means the quotation of two correlated but different currencies known as pip or “percentage in point”, then a “tick” depicts to the smallest change or increment or movement in any currency pair on the FX market.

In a currency pair, the first currency is called the base currency or the transaction currency while the second currency is known as quote currency, payment currency or counter currency and they are always subjected to changes like for example; EUR/USD currency pair. For example, a change or movement from 0.8941 to 0.8942 is called one tick or pip, so pip for this is 0.0001. For AUD/USD currency pair the case is the same, one pip is 0.0001.

Below is a table for the most common or major currency pairs showing its National Amount and Its pip to USD equivalents:

• EUR/USD EUR 10,000 .0001 = $1
• USD/JPY USD 10,000 .01 = $1
• GBP/USD GBP 10,000 .0001 = $1
• USD/CHF USD 10,000 .0001 = $1
• USD/CAD USD 10,000 .0001 = $1
• AUD/USD AUD 10,000 .0001 = $1
• NZD/USD NZD 10,000 .0001 = $1

You will notice that in the table the example currencies are quoted in four decimal places, which is the most common way to quote, except for Japanese yen. Let’s take a value of USD/CHF of 1.5395 as an example, 5 the fourth place is the pip.

So, how do we arrive with these results? The formula to calculate this value is defined as: one PIP (with proper decimal placement) / currency exchange rate x National Amount

Let‘s take for example per 10,000 Euros in EUR/USD, how much in dollars is one pip movement or one tick? Taking or referring to the size that is in this case is 10,000 units of Euros as the base currency and National Amount and one pip base on the given table, we will get: (.0001/.8942) x EUR 10,000 = EUR 1.1183

Using the same example, since we want to the get the value of one pip in dollars or USD, we will need to get the product of EUR 1.1183 and the exchange rate of this currency pair, that is 0.8942 and we will get $1.00 same as in table.

If you notice, every currency pair like the USD/JPY, GBP/USD or USD/CHF one pip is always $1.00 per 10,000 currency units. This in an amazing fact and that is why pip or tick values even in futures are always the same.

This is one important term on Forex that one should know and have to understand because this will determined or using pip you will know how to calculate your profits and losses in the Forex market.

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The balance of trade also referred as trade balance, which sometimes is symbolized as NX, is the difference of the monetary value of imports and exports in one economy in a given period of time. The balance of trade is considered the biggest part of a country’s balance of payments.

Imports, domestic spending, foreign aid, and investment abroad are called debit items while credit items includes exports, foreign investments in domestic economy and foreign spending in domestic economy.

A trade surplus is a positive balance of trade which is consists of more exporting than importing. A trade deficit is the negative balance of trade or sometimes called a trade gap. The trade balance can sometimes be divided as services balance and goods balance just like in the United Kingdom which they use the terms invisible and visible balance.

The balance of trade is a part of current account which includes transactions that includes income derived from international investment and international aid. Thus, if the current account comes as a surplus then the nation’s international net asset increases also while deficit will decrease the international net asset.

A good trade surplus is achieved when a country exports products more than buying imported goods. A trade deficit is eventually experience as a result of the opposite of a trade surplus. The trade balance is alike to the difference of a country's output and the domestic demand. These factors may affect the trade balance: prices of goods manufactured, taxes and tariffs, trade agreements, business cycle (home or abroad), and exchange rates.

The trade balance is different in many business cycles. For instance, export growth like oil and industrial goods which improves when there is economic expansion.

In developed countries like; Japan, China and Germany usually run at trade surpluses in which they experience a higher savings rate. Around the world there are different natural resources which a country may have for instance, countries from the coastal regions are major producers of fish, Canada can be a major producer of lumber because of its huge forests while in the Middle East, has the most oil reserves.

International trade is important so in order to sustain the balance of trade. A country should be totally self sufficient without international trade. Through international trades, each country will have the opportunity to produce specialize goods efficiently. In relation, when a nation specializes in producing these goods, the total production increases instead of trying to be self sufficient. Nations will benefit from international trades and also meets their needs. Generally, nations will trade to other nations when they gain from the trade. But the gains are not usually equal in terms of benefits and profit.

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In economics, transaction costs are the rate acquired when making an economic exchange. This costs incurred when buying or selling securities or stocks. This is also referred as transaction fees. Transaction costs also comprise of brokers’ commissions ad spreads (difference between the price that the dealer paid for a security and the price it may be sold. This is what the broker or bank produce for being a middleman in a transaction.

For instance, most people when buying or selling a security or stock, pays a commission to their broker and that commission can be considered as the fee or transaction cost for doing that stock deal. When evaluating a potential transaction, it is crucial to think about these costs that might prove significant. Mostly, in financial markets, the initial cost for these transactions is commission which is paid to brokers upon trade execution. This costs becomes increasingly important the shorter the holding time of an investment.

Many market models disregard transactional costs, presumptuous instead those markets are non resistant. While this thought is invalid, for many applications such costs are low enough that they can be disregarded. The lesser the cost for a transaction, the more effective and competent a market is said to be. The Foreign exchange market and stock market have lower costs for such transactions of any major asset class.

It is considered to be much more cost- efficient to trade in Forex in terms of both commissions and transaction fees. An online website for example charges no fees or commissions and at the same time offer traders an access to all relevant market information and trading tools. On the contrary, online stock trade commission ranges from $7.95 - $ 29.95 per trade and up to $100 or more per trade with full service brokers.

Another thing to consider, which is an important point is the width of the bid / ask spread. Regardless of the deal size, foreign exchange dealing spreads are normally or common in 3-4 pips (anyway a pip is .0001 US cents) in the major currencies. Generally, the width of the spread in a foreign exchange market transaction is less than one tenth (1/10) that of a stock transaction, which could contain a .125 or one eight (1/8) wide spread.

Since transaction costs are paid via bid/ask spread, there has to be no charges to trade or hidden fees. There are instances that there would be extra charges asked by good brokers for some non compulsory services or access to particular reports. A smaller spread is visibly better. Since brokers are taking the other side of all the customer trades, brokers gain profit by making the spread between the bid and offer prices. You may find that find spreads vary by broker.

In order to be successful in trading on the foreign exchange market, you have to find a good broker.

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The candlestick charts are also considered to be quite related to the bar chart. It also has the same four features or primary price points: the high, the low, the open and the close. The candlestick is often at times taken to be a lot much easier to look at and quite easier to analyze than its bar and line chart groups.

These charts are believed to be one of the oldest types of charts which are used for predicting prices. They try to trace back the history of it, and believed it to be during the 1700s where it was used for the purpose of rice price prediction. In reality, during this early period in Japan, Munehisa Homma becomes a legend when it comes to rice trading and he obviously gained a huge fortune using candlestick analysis.

People around him believed he is one of the people who have carried out over 100 consecutive winning trades. In this type of chart also, similar to other common charts, this also have the open, close, high and low of the features of online Forex prices. Japanese Candlestick charts are the most understandable visual representation to observe movements in prices. It records the price movement on Forex charts which gives a clear picture for Forex traders to study. Japanese candlestick charts are also known as sign language of the Forex market.

The Forex candlestick charts are used to predict the present situation of the market. Although it corresponds to the usual OCHL prices as 'candlesticks' with a wick at each end, the candlestick provides a more understandable illustration detail more than any other chart being used. When the initial rate is higher than the closing rate the candlestick is considered to be solid. When the closing rate exceeds the opening rate, the candlestick is believed to be hollow as a result of the colored bodies.

One advantage that Forex candlestick charts may provide is when you only take a quick view; you may notice a lot of information about the unpredictable movements in an online Forex currency. Most importantly, you engage yourself to be aware of the difference between the open and close prices of the online Forex. Forex Candlestick charting is great for Forex traders looking for better ways to gain better profits and earn income.

If you detect a red candlestick, it can be considered to be taken as a warning about the way the currency price is going. The plump red part of it is the body of that Forex candlestick. The lines analytical from the top and bottom are the upper and lower wicks. The very peak of a candles wick is the highest price for that specific candle while the bottom of the wick is the lowest price for that particular candle.

Other advantages of using this candlestick chart are: are used together with other technical tools . You may combine them with conventional market indicators. It could be a great method of spotting opportunities at the same time. Second, this chart can notice changes in trends which could give warnings showing reversals in market more visual than bar charts.

This type of chart also is clear-cut to use. It has the same points like open, high, low and close data in Forex trading bar charts which are very conventional. This chart gives way in defining present situation of the wavering market.