With an average turnover in excess of USD 4 trillion per day, forex currency trading is the most traded market in the world. These markets are open twenty four hours a day from Sunday evening through to Friday night. Forex trading being basically the simultaneous purchase of one currency while selling another for the purpose of speculation, it is important to know how the currency value appreciates and depreciates against each other by understanding what forex signals and pips are in this regard.
Percentage in Points: Pips
The word pip is actually an acronym for Percentage in Points, in some quarters it is also called Price Interest Point. It does represent the smallest movement that a currency pair can make. Most currency pairs are usually quoted to 5 decimal places with the change from the fourth (4th) decimal place (0.0001) in price being referred to as the pip. For example, if the price of the EUR/USD forex pair moved from 1.44700 to 1.44840, it is stated to have climbed by 14 'pips' this is basically (84-70= 14). The main reason behind the use of pips is to protect investors from huge losses.
So in most pairs, a pip is 0.0001 of the current quote, this commonly referred to as 1/100th of 1% or one basis point, with the only difference coming into play with Yen pairs where a pip is equal to 0.01. It is important to note though that there are brokers who offer fractional pips and can therefore quote one tenth (1/10th) of the standard pip size, so instead of quoting 0.0001 they may quote 0.00001. The use of fractional pips allows for tighter control on losses and profits and also offers flexibility on spreads. When your trade is in positive pips, you are making a profit but when it is negative, then you are trading at a loss.
Signals: The vehicles for the trade.
A forex signal on the other hand is a suggestion for entering a trade on a currency pair; this is usually at a specific time and price. These signals can be generated by either an automated forex robot that’s supplied to a subscriber of the forex signal service provider or by a human analyst. Because signals are time sensitive, they are usually sent through instantaneous or immediate methods such as SMS, Email, Tweets, and RSS etc.
Signal services are usually divided into four (4) main categories, these are ; free or unpaid signals, paid signals which have been aggregated from several signal systems or sources, paid signals from a particular provider or signals provided by an Expert Advisor (EA)or forex robot (trading software located on a traders computer).
A good signal service provider should provide approximate or exact exit, entry and stop loss figures for trades on one or several currency pairs as well as supporting analysis and/or graphs for the provided signals. It should also show a trading history showing the number of pips loss/profit per month and also the reward/risk ratio as well as the actual trades. In the case of forex robots, this is usually shown as what is known as back tested results. Most service providers also offer some educational resources to their clients either online or via a phone.