An investor wants to try their hand at currency trading, but there is concern about losing money on fees and charges alone. With ActivTrades, investors can rest assured the money will be put to good use and not wasted on hidden fees and costs.
Spreads are the difference between the bid price and ask price on foreign currency. The spread is determined by the pip, calculation, or percentage in point.
Percentage in point is a common currency exchange rate fluctuation. Most major currencies are priced to four decimal places, and a pip is one unit of that fourth decimal point, or one-hundredth of a cent. Since currency is traded most often in lot sizes of 100,000, a rate change of one pip equals 10 units.
Most target spreads range from 0.8 to two pips or a little bit more for the major currencies. The target spread is 0.8 pips for euro-to-dollar transactions, and it goes up to 1.7 pips for transactions involving New Zealand and United States dollars, or euros and swiss francs.
The target spread goes up for transactions involving minor currencies. For example, a spread of 2.4 pips is the target for British pound/Japanese yen transactions, and it goes up to 5.2 pips for transactions involving the New Zealand and Canadian dollars.
The third level of currency transaction involves exotics. Exotic currency doesn’t mean the currency is beautiful or luxurious to look at. It simply means there may be market or liquidity restrictions on some of these currencies. For that reason, the target spread value can rise as low as 5.5 pips for Australian/New Zealand dollar transactions to as high as 100 pips for currency swaps between the United States dollar and Brazilian real.
Keep in mind this does not mean the real is a bad investment. It just means the market for the Brazilian real isn’t as big as it is for the United States dollar, the euro, the Canadian dollar or other large-market currencies.
There are risks involved with currency trading, especially when it comes to the exotic markets. That is why limit and stop levels are placed into effect with companies like ActivTrades. Limits and stops are set at a minimum of two pips. These levels are the minimum number of pips between the current price and a pending limit or stop order.
Now you know more about the pip system go ahead and take a risk. For further information; get in contact with ActivTrades today.