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What are Pips?
In FOREX, a "pip" is the smallest price increment for a trade or price movement– pip literally stands
for "Percentage in Point".
Currency and commodity prices are quoted with four decimal points for example EUR/USD might be bid at
1.6281 and offered at 1.6273. In this example we can see that the spread is 8 pips wide. The Japanese Yen (JPY) is
an exception to this rule, where it is quoted with only two decimal points.
Brokers and traders will quote the value of a currency pair, and trade sizes, in both pips and lots. Whilst most
brokers provide clear pip spreads, there are some brokers that also offer fractional pip quotes. For new traders,
an important tip is to measure profit or loss in a round trade or overall account by pips instead of the actual
dollar or currency value. A one pip gain in a $10 account is equal, in terms of the trader’s skill, to a 1 pip gain in a
$1,000 account, although the actual dollar amount could be very different.
What is a Stop / Loss?
Stop loss is essentially an order type whereby an open position is automatically liquidated at a specific price
decided by the trader at the point of opening the trade position. The feature is used to minimize exposure
and risk to losses if the market moves against the trader’s position. As an example, if an investor is long USD
at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar
depreciate below 155.49.
When traders make use of stop loss features, they do not need to actively monitor or track how a trade is
performing since the chosen stop loss will prevent the entire investment being lost should the market move
aggressively away from the trader’s position.
However traders should be aware that the stop order is triggered automatically by the platform when the stop
price is reached. Sometimes the stop order could be activated by a short-term blip the currency price that
quickly rebounds into positive territory.
