A-micro-lot | Forex Blog

August 13, 2009

How to know how much a “pip” is worth for any pair!

Filed under: Forex News — Tags: a-micro-account, a-micro-lot, a-standard-mini, and-looking, jpg, looks-like, markets, september-effect, slightly-over, something-other, then-the-pip — admin @ 10:41 pm

Many times, newer traders ask me how they can find out how much a “pip” is worth for any pair. Some will refer to these as pip “costs”, others will say pip “values”, etc. but it’s all the same thing.

They all want to know, if my pair moves up one increment or down one increment…how many dollars does that equate to?

Here’s the simple answer. It’s automatically calculated for you on your trading station. You can view this on the “Advanced rates” which is the default setting..OR…you can view it on the Simple rates” tab.

See both of them below.

I’ve circled (in each format) where to find the pip cost/value for a pair. Notice that any pair that ends in USD (ex. EUR/USD, GBP/USD, NZD/USD, etc.) all have pip values of $1.00 per standard mini lot. Had this been a micro account, then the pip value would be 10 times less or .10 (10 cents) per pip of movement (since a micro lot is ten times smaller than a standard mini lot).

Remember, that a standard mini lot = 10,000 units of currency and a micro lot = 1,000 units of currency.

So the pairs that end in something other than USD (ex. EUR/CHF, USD/JPY, EUR/AUD, etc.) will have pip values that change slightly over long periods of time.

However, you can easily see what a “pip” is worth in that pair BEFORE you place your trade since it’s conveniently located on your quote screen.

This is important to note because there’s a big difference in EUR/GBP’s pip value of $1.66 and EUR/AUD’s pip value of .84 (84 cents).

So one pip of movement for or against you in EUR/GBP is +/-$1.66. However, in EUR/AUD this same amount of movement is +/-$0.84 (big difference, dollar wise…yet the same amount of pips moved). Click on the charts to enlarge them.

Sean Hyman

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August 12, 2009

Here’s what makes the Carry Trade so great!

Filed under: Forex News — Tags: a-micro-account, a-micro-lot, earn-the-most, jpg, markets, money, same, world — admin @ 11:17 pm

Many people don’t really get the “carry trade” strategy and why it’s so great. Their focus is on the daily interest and they don’t see themselves getting rich off of the daily interest. However, that’s only ONE of the reasons why traders get into the carry trade.

Think of a carry trade this way. Let’s say you have two banks in the same town. Bank A will offer you 3% in a savings account while Bank B will only offer you 1/2 of 1% (0.50%). Which one are you going to deposit money into?

Now, if you were a betting man or woman…which bank would you bet on having the most “inflows” of deposits? Of course, Bank A…because people aren’t idiots and want to earn the most they can on their money.

Well while the carry trade isn’t a “savings account” by any means…it works off of a similar principle.

Traders and investors alike want to earn the most that they can on their money. After all, the interest earned is the closest thing to a guarantee as you’ll get. So investors look out in the “investing arena” and look to see who has high interest rates when compared to others.

It’s no surprise that investors from all over the world pile into the same, few high yielding currencies.

Look at the chart below and you will see what investors all over the world are looking at. Now which currencies would you look into first? The U.S., Japan?….or Australia and New Zealand? Of course, the latter. Why? Because your mama didn’t raise a dummy and you want to get the highest interest rate possible on your money. Click on the charts below to enlarge them.

Guess what? So does everyone else out there in the world. So it’s no surprise that money flows away from the U.S. and Japan right now and into Australia and New Zealand. They’re moving their money from “low yields” to “high yields”.

So now that we can predict the “long term” flow of money…why not jump in the line now and allow all of the other future buyers of Aussie and New Zealand dollars push up our positions in these same currencies over time.

So if I buy any of these (as of the time of this writing): AUD/USD, AUD/JPY, NZD/USD or NZD/JPY then I can enjoy BOTH the money flow AWAY from the U.S. and Japan and the money flow INTO Australia and New Zealand. By capturing both dynamics…my positions ratchet higher over time WHILE at the same time, I’m earning DAILY interest while I wait for further appreciation in the pair.

When this strategy works: This strategy works when the global economy is coming out of a recession (past the trough of the recession) and in expansionary times when countries are doing good economically.

When the strategy doesn’t work: This strategy doesn’t work when the global economy is about to go into a recession (or for that matter, usually even when it’s just the U.S. going into a recession).

Since expansionary times last longer than recessionary times, the strategy works, more times than not.

When it’s not working….guess what? Short these pairs and you can make money that way.

Sean Hyman

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August 11, 2009

Dollar’s rally is just about to run out of steam!

Filed under: Forex News — Tags: a-micro-account, a-micro-lot, a-rally-into, averages-also, dollar, dollar-uptrend, markets, probably-better, technical, territory-once, trend, until-it-ends, with-the-trend — admin @ 11:21 pm

Even bear markets have rallies. But why would I refer to the dollar’s recent rally as a “bear market rally” and not a rally into a “new trend”? Because there is no technical indication that has surfaced to think otherwise. Click on the chart below to enlarge it.

Several things worth noting on that chart of the U.S. Dollar Index:

The pair is still downtrending as shown by it trading below BOTH the 50 and 200 Simple Moving Averages. Also, the MACD lines are below the zero line (red boxed area) and the Slow Stochastics are just about to go into the “overbought” territory once again as the dollar approaches its 50 day SMA resistance area.

There’s an old Wall St. saying….”trade the trend until it ends”. However, do realize that there are rallies in every bear market (downtrend). These are to be expected. After all, they usually can’t go “straight down”. Therefore, upward corrections are involved…much like the pull backs that happen within an uptrend.

Therefore, there’s no reason to see this as any other thing unless this technical picture changes. So far it has not. So I’ll stick with the trend “until it ends”.

That means, it’s probably better to be a buyer of strong currencies as these dollar rallies happen and start to roll over once again. Two of the top “strong currencies” right now are NZD and AUD…so being a buyer of NZD/USD and AUD/USD after these dollar rallies (which cause pull backs in these pairs) is to be favored until such time that there’s an actual re-emergence of a “dollar uptrend” which I think is a long ways off.

Sean Hyman

www.forextradingblog.com

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