Assume we will be using $100,000 lot size. We will now recalculate some examples to see how it effects the pip value.

USD/JPY at an exchange rate of 116.73
(.01/116.73) X $100,000 = $8.56 per pip

USD/CHF at an exchange rate of 1.4840
(0.0001/1.4840) X $100,000 = $6.73 per pip

In cases where the US Dollar is not quoted first the formula is slightly different.

EUR/USD at an exchange rate of 0.9887
(0.0001/ 0.9887) X EUR 100,000 = EUR 10.11 to get back to US Dollars we add a further step

EUR 10.11 X Exchange rate which looks like EUR 10.11 X 0.9887 = $9.9957 rounded up will be $10 per pip.

GBP/USD at an exchange rate of 1.5506

(0.0001/1.5506) X GBP 100,000 = GBP 6.44 to get back to US Dollars we add a further step

GBP 6.44 X Exchange rate which looks like GBP 6.44 X 1.5506 = $9.9858864 rounded up will be $10 per pip.

Your forex broker may have a different convention for calculating pip value relative to lot size but however they do it they will be able to tell you what the pip value for the currency you are trading is at that particular time. As the forex market moves so will the pip value depending on what currency you trade.

It is great seeing pips growing in your forex account but exactly how much profit does one gets depends on the currency. Let’s assume you want to buy US Dollars and Sell Japanese Yen. The current forex rate is 116.70/116.75 because you are buying the US you will be working on the 116.75, the rate at which traders are prepared to sell.

So you buy 1 lot of $100,000 at 116.75. A few hours later the price moves to 116.95 and you decide to close your trade.The new quote is 116.95/117.00 as you are now closing your trade and you initially bought to enter the trade you now sell in order to close the trade and you take 116.95 the price traders are prepared to buy at. The difference between 116.75 and
116.95 is .20 or 20 pips.

Using our formula from before, we now have (.01/116.95) X $100,000 = $8.55 per pip X 20 pips =$171

In the case of the EUR/USD you decide to sell the EUR and are quoted 0.9885/0.9890 you take 0.9885. Now don’t get confused here. Remember you are now selling and you
need a buyer. The buyer is biding 0.9885 and that is what you take. A few hours later the EUR moves to 0.9805 and you ask for a quote. You are quoted 0.9805/0.9810 and you take 0.9810.

You originally sold EUR to open the trade and now to close the trade you must buy back your position. In order to buy back your position you take the price traders are prepared to sell at which is 0.9810. The difference between 0.9810 and 0.9885 is 0.0075 or 75 pips.

Using the formula from before, we now have (.0001/0.9810) X EUR 100,000 = EUR10.19: EUR 10.19 X Exchange rate 0.9810 =$9.99($10) so 75 X $10 = $750.

To reiterate what has gone before, when you enter or exit a trade at some point your are subject to the spread in the bid/offer quote. As a rule of thumb when you buy a currency
you will use the offer price and when you sell you will use the bid price. So when you buy a currency you pay the spread as you enter the trade but not as you exit and when you sell a currency you pay no spread when you enter but only when you exit.

Too many forex traders are more interested making a lot of money trading forex rather than becoming better forex traders. Other forex traders give up too easily after a few months of losing money.Giving up too early is a sign of not understanding the work that it takes for some one to become successful trading the forex market. There is a long list of things that a new forex trader should learn over time and it includes and not conclusive,

1. Enter Orders

It seems obvious but I do know I lost a lot of money placing buy orders instead of sell orders in my broker’s platform. Different forex broker platforms have different rules and methods for placing forex orders.Spending a few hours learning how to place the different order types including stop orders could save you a few dollars in the long run.

2. Read Charts

If you are planning on becoming a technical forex trader, it is essential to learn how to read forex charts.Take the time and effort to learn what a candlestick is, what a bar chart is, what is an up trend etc. If you can not explain what a forex chart is doing in your mother tongue ,then you have more learning to do.

3.Use Technical Analysis

This is where you might spend a great deal of your forex trading time. It is imperative to learn the ins and outs of your technical trading systems and indicators. Just learning what a moving average is is not enough. You need to learn the what, how’s and why’s of your trading plans. I believe this is the most fun for a forex trader.

4. Learn Fundamental Analysis

Currency trading is all about exchange rates in different countries. It is very important to learn how or why a particular currency is moving in a particular direction. What are the effects of Ben Bernanke coughing in New York to traders in Tokyo ? I do not mean that you have to go back to school to learn economics but a little effort in learning why interest rates move a currency is important.

5. Write Systems

It is important for the forex trader to learn his own best forex trading strategy. You might pass trading other peoples forex systems but to be a more profitable trader, you need to learn how to create forex systems and methodologies that work for you. Who know’s if you do become good at it, you may also be able to sell them for a profit.

6.Manage Risk

Most new forex traders start trading to avoid starting other businesses they consider to be risky or too much work. However, for one to become a better forex trader, you may need to learn how to manage your own forex trading risks. Learning how to create forex methodologies that reduce your risks in the trade, money money management, political risks and even hedging is an on going process and always leads to more profits.

Forex trading is an ever learning process. The best forex traders spend a considerable amount of their time learning and improving on their skills and merging all that they know in consistent and profitable forex trading systems.

When I first started trading currencies, I spent a lot of time in forex forums and forex chat rooms. I spent 80% of my forex trading resources looking for that perfect forex system that would make me money every day, every trade and forever. It was easy to be side tracked with the latest and greatest forex systems out there.Every day a new system would be introduced in the forex forums. Before I knew it, I was spending more time chatting in forex forums than actually trading the forex market.

It did not take long for the fruits of my labor to be realized with my trading account being reduced to zero. Talking to some better forex traders than I , I came to the following conclusions to the reason why some forex traders are better than others.

1. Good Forex Traders are Properly Capitalized.

A forex trader with an account size of $1000 trading full lots or even mini lots, is on track to losing his forex trading capital. A lot of forex brokers entice new forex traders with low account opening requirements. Their literature is full of traders who made 1 million dollars trading the forex market. The only information they do not give is that out of their 1000 clients only 1 of them made that 1 million dollars, the rest were so undercapitalized they lost their accounts and had to add more money.

2. Good Forex Traders Treat Forex Trading as a Business

Reading forex charts can be addictive. Before long the forex trader finds himself trying to read those beautiful charts and making forex systems, they forget that forex trading is not a hobby.A good forex trader has set up his trading as a business like any other. Tracking your profits and loses as well as your tax requirements is essential for the forex trader. Keeping proper records of your business is essential. Otherwise, you are just gambling. Actually some gamblers do take gambling like a business, so why don’t forex traders do the same.

3.Good Forex Traders Trade When There is An Opportunity

I feel sad when I look at my earlier accounts and see that 80% of my loses occurred after I had decided to enter the market when my trading plan did not require me to. Intuition is not a very good attribute for forex traders with a trading plan. Chasing the market is the biggest crime a forex trader can make but it happens to be the most common problem with traders of all levels. Wait patiently for you trading opportunity and only trade then.

4. Good Forex Traders Hate Risk

I used to believe that forex trading is a risky undertaking until, I discovered that when I stopped risking trades, I made more money.A proper trading methodology is meant to reduce the forex trader’s risk to tolerable levels. It is not wise to risk trades for the sake of it.The first few months of a traders life should be spent on trying to reduce their trading risk to levels where they can consistently make profits and predict the outcomes of their trades. If you have a trading plan that tells you all the possible outcomes of your trades, then you are on the way to becoming a risk free forex trader.

Of course there are other attributes that great forex traders have but these were the ones I worked on for sometime. I am still working on them and the beauty of forex trading is that you can only get better the more you practice the proper methods of forex trading.

Once a forex trader moves from the newbie stage to a more consistent trader, the choice of their forex broker becomes more important. This is because your choice of your forex broker carries risk and also costs in your trading and at this stage, each and every pip counts. Some of the criteria that you might need to think about when choosing your forex broker are.

1. Forex Regulation

The USA and the UK are becoming stricter when dealing with forex brokers. This is mainly due to the various forex broker collapses that started with refco . Most forex firms collapse and clients never receive their funds again. If you live in the USA or the UK and are worried about your forex brokers being safe to invest your funds in, the it is important to choose a forex broker who is either regulated by the CFTC or NFA in the USA or the FSA in the UK.

2. Tax Consideration

Though it is not spoken of often, since most forex trading is not regulated, most tax authorities in the world have yet to get a handle on how to tax forex profits or loses. This is one of the reasons why many forex brokers are registered in tax free areas like the Bahamas or the Cayman Islands. The USA authorities are yet to require forex brokers to report forex earnings and most forex traders are doing so because of the fear of not reporting such income. Forex brokers outside the USA are not required to report such income and are getting more clients with high net worth because of this reason.

3.Trading Platforms

A forex broker’s trading platform can speak volumes about the depth of their investment. It is upon the forex trader to choose a platform that he/she understands and is comfortable with .Choosing a trading platform with too many bells and whistles can slow down your trade execution especially if you are scalping. Some forex trading platforms are known not to allow scalping .

If you are using Metatrader to choose your trade entry ,it makes no sense to have a broker who is not using Metatrader. If you are in a region where downloading forex trading platforms is a hassle then choosing a java based trading platform would make more sense than having one installed in your computer. So choose a forex broker who’s platform is suitable to your specific needs.

4. Forex Spreads

A lot has been said about there being no broker commissions in forex trading. It is not entirely accurate. Forex spreads are your cost in forex trading and each forex trade has a bid and ask spread which is your cost of trading. If my broker’s spread is 1 pip less than yours and we both make some 200 trades a year, it means that at the end of the year, I will have saved $2000 compared to you on the very same trades other things being equal.

There are various reasons why you choose your forex broker and some even include the so called sixth sense. But before the forex trader commits his forex trading funds to any particular broker, one would be wise to take some time and do some due diligence.

However, there are a number of mistakes that all forex traders seem to repeat .Cutting down on these, would greatly increase the success probabilities for the forex trader.

1. Choosing Your Forex Broker.

Some 5 years ago, I could count the number of retail online forex brokers in  my hands. Now we have over 200 forex brokers and they are still increasing in number . So why do new forex brokers still flock to brokers who are undercapitalized and who’s cost of doing business is too expensive for them.

Cost of doing business for the forex trader includes the pip spread. If you choose a broker who’s pips are 2 or more pips than my own broker, I am making at least 2 pips profit over you each and every time we put the same trade . This adds up .For example if you lose 2 pips each trade at $10 per pip at the end of 1000 trades, I will be $10,000 in profit though we are trading the same system.

2.  Lack of Forex Business Plan

I know forex brokers like making forex trading seem like the best get rich quick scheme ever created but the truth of the matter is that forex trading is just like any other business you will ever start.

The best way to fail in any business is to not have a business plan.The forex trader must be savvy in identifying his source of trading capital, costs of doing his business especially opportunity costs etc.

I have seen very few forex traders with a business plan and this may be one of the main reason for forex traders turnover.

3. Lack of a Forex Trading  Plan

This might seem to be the same as a forex business plan but they are not. A forex trader without a forex trading plan is like a fisherman without a hook. You will never catch any fish without a forex trading plan.

A forex trading plan should be very specific. If a 10 year old child read the trading plan, they should be able to execute it. The basic items to be listed in a forex trading plan include

1. Entry strategy
2. Exit strategy
3. Trade Continuation Strategy
4. Money Management Strategy

There should be no questions asked about a trading plan and it should be written down. Again ,very few forex traders even bother with this.

4.  Think Long Term in Forex

It is true that some people make a killing in a very short time in the forex market. However, it is more likely that you will lose your forex trading capital in an even faster time. The best forex trader is probably George Soros, but he is still trading forex because he thinks long term, not because he made a quick buck.

Any forex trader who thinks of trading in terms of a get rich quick scheme might as well go over to Las Vegas and gamble. He might have better odds of beating the forex market.

Here are some of the things I have learn over the years about using forex oscillators.

1. Don’t Trade in the Extreme Regions.

Most oscillators have the 30 for oversold region and 70 in the overbought region. A good forex trader would avoid buying when the oscillator is already in the overbought region or selling when the oscillator is already in the oversold region. A smart forex trader would wait until there is a better entry point in the market.

2. Do not Use Oscillators Exclusively

Do not fall into the forex system selling trap where you have a forex system with only one oscillator as an indicator. There is no perfect oscillator and all  come with their strengths and weakness. It is my opinion that any one using only one oscillator as their exclusive forex indicator, is bound to fail as a forex trader in the long run. The opposite mistake is trying to use too many oscillators as indicators. When you have too many indicators on your chart, you are likely to get traders block. You will have 2 indicators telling you to buy and 2 to sell and find yourself not making any trading decisions.

Avoid any forex trading systems that have too many oscillators attached .

3. Exit When The Forex Oscillator has Peaked

Making entries in a forex trade is important and making entries at the right time is just as important. You can use forex oscillators as good exit indicators. A good forex exit is to exit your trade when your oscillators are peaking . An example is if the RSI is in the 80 region, it is more likely that the market will exhaust the move and an exit should be considered.

Avoid, entering a market when the oscillators have peaked. The market is more likely to retrace in such a situation.

4. Trade in the direction of The Major Trend

However much a trader is tempted to trend against the trend, so as to catch quick profits or trying to catch the top or bottom of a move, it should be avoided. The quickest way to lose your forex trading capital is to try to catch tops and bottoms using oscillators. There are enough profits to be had following the forex trend without trying to catch the tops and bottoms of a particular move.

All in all, a prudent forex trader will choose the best oscillator for his particular trading time frame and trading style.

1. Buy on RSI From Oversold Territory.

Most forex system use the RSI as a trading signal to figure out when a currency is in either oversold or overbought territory. Depending on the forex trading system, overbought is either above the 70 or 75 region and oversold is below the 25 or 30 region. But signals are triggered in the 30 region and sell signals are triggered in the 70 region.The best option if you are buying using the RSI is oversold territory is to wait until the RSI  is moving out of the oversold region as it’s a better sign of a bullish forex market.

The chart below shows a trade where the RSI(9) moved out of the overbought section and signaled a sell signal .This particular trade held for the rest of the trading session.

2.Buy/Sell when RSI Stalls at the 50 Line

Most professionals forex traders love trading retracements during a strong move or trend . It is also common for the RSI in such situations not to cross either the 30 or 70 line .Instead, most professional forex traders wait for the RSI to dip to or slightly below the 50 line and figure out if it is a buying opportunity.

In this particular forex trading situation, the 50 line in the RSI  is used as support and resistance. The retracement would start when the RSI bounces of the 50 line and normally occurs during a good trend move .In the example below, the up trend in the usdchf was strong and the forex trader could have entered the up trend when the RSI hit and bounced back from the 50 line.

3. Buy/Sell Based on RSI Trend

The 50 line in the RSI can also be used as a trend indicator. This is especially used with the RSI having a longer look back period than 14. Some systems use RSI 45 for this. The idea is that the area above the 50 line signals a bullish signals and the forex trader should only consider buys. The area below the 50 line should encourage to forex trader to only consider sell signals.

In the chart above, you can see that the RSI(9) stays above the red 50 line for the whole up trend. A forex trader could have exited the market at the end of the chart when the RSI went below the 50 line in the trading session.

4. Technical Analysis Patterns in the RSI

One can also use the regular technical analysis patterns on the RSI. You can draw trend lines, support and resistance lines on your RSI chart section. The only problem is that this can be rather tedious on some forex charting packages. However, some charts like fibonacci trader can draw such support and resistance lines and even include moving averages on your RSI chart panel.

All in all though the RSI is a great momentum indicator, a trader should not rely it exclusively for all their signals. However, learning how to use it and interpret it would make your forex trading experience more enjoyable and profitable.

Technical forex traders tend to be short term traders looking for quick profits from market dips. Fundamental traders tend to be long-term traders who are looking for major economic shifts in a currency market. One of the biggest issues with forex traders is the notion that they will be profitable in the long run if they traded fundamental news in the short term. Numerous forex systems have been sold with the idea that they can capture the sudden currency moves during Central Banks meetings. Such traders are likely to be lucky enough to make a few positive trades but are doomed to failure sooner rather than later.

Fundamental trading can be very profitable for the forex trader if they are to concentrate in using fundamental forex data the proper way. To increase your chances of being a successful fundamental forex trader, you may wish to think about the following.

1. Get To Know Your Market.

If you are going to trade the forex market using fundamental data then it would be prudent to get the whole picture. Just because the interest rates have fallen in the USA does not automatically mean that the yen will rise against the dollar. There are other things to consider. For example, what if the USA Central bank dropped interest rates but then the Japanese Central bank also dropped their rates at a higher proportion? This would mean the forex trader going for a short on the dollar would lose money as the Yen would be more likely to decline at a higher rate.

The forex trader must be able to understand what political decisions and banking decisions do to the particular currency the trader is trading.

2. Complement Fundamentals and Technical Trading

Nothing is more profitable than an all rounded forex trader. Having the knowledge of the fundamentals behind the movement of a currency is great. Having the technical trading knowledge to back your forex trades will be very profitable. The professional forex trader confirms an entry using technical indicators after having read the fundamentals of the currency market.

A breakout is probably the best example of a technical trade that confirms a fundamental decision. Most breakouts occur due to some fundamental data that traders have been waiting for or some important economic news that was unexpected.

3. Don’t Marry a Trading Position

An ego is a forex trader’s worst enemy. Once a trader makes a decision as to the direction he is going to trade, he will then be faced with trying to figure out when to exit the market. It is easy to figure out when one has made a mistake if he uses technical analysis. However, by depending on fundamental forex analysis, one runs a very high risk of assuming the market will stay in one direction due to some fundamental economic decision. A good example is the current state of the USA economy .A trader might be convinced that the US dollar will continue it’s decline and continue shorting the dollar. That may not necessarily be the true.

From the above ,we can see that the prudent forex trader is better served by going both a good fundamental trader and technical trader too.