You need to have full knowledge about forex PIPs, or Percentage in Point, to make the task of computing your profit and losses possible. A pip is the smallest unit of increase or decrease in the value of a particular currency. For example, if you buy a certain currency at 1.2475 and sell it for 1.2489, you made 14 pips. Doing your calculations using this unit is much more efficient than using any currency, because you would no longer need to do any conversion or any complex calculations.
Since forex trading involves currencies that are often traded in pairs, reducing the spread of forex pips is possible by dealing currencies that have a small price difference. This makes it important to calculate the pips when you are tallying your profits. After all, you will be able to accurately gauge the amount that you make if you fail to consider this unit into consideration.
You can also use your knowledge about pips in planning out your investment tactics. Because you will be using a more accurate unit, you will be able to formulate a plan that will be more suitable for your needs. For example, you can use pips to calculate when the quote rates are lowest and highest, thereby giving you the right timing of selling and buying your currencies.
However, using pips as basis for investment plans is not preferred by some traders, mainly because pips tend to be a little unstable. There are times when the pip rate will be higher than normal, thereby giving you more opportunities to make a decent amount of profit. However, during the times when the pip rates are low, you will be having difficulties in earning anything at all, no matter what you do.
Pip rates also differ from one currency to another. For this reason, it is highly unlikely for one person to be able to calculate the pips of every single currency in the whole world. If you are serious about using pip rates as bases for your investment plan, you better enlist the help of a trained broker, to keep you from making any fatal mistake.
Reading Forex Price Action Effectively - June 8