Introduction to FX Markets

Phan Vũ Ngọc Lan

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 The foreign exchange market

The foreign exchange market is the

"place" where currencies are traded

=> Currencies need to be exchanged in order to

conduct foreign trade and business

Quick Review of Market Characteristics

• World’s largest financial market.
• Market is a 24/7 over-the-counter market.
• Major trading center is London, England.
• Most popular traded currency is the U.S. dollar.
• Most popular traded currency pair is the U.S.
dollar/Euro.
• Currencies are either traded for immediate delivery
(spot) or some specified future delivery (forward).

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 Market Fact Sheet

• An integrated virtual market place

• Electronically connected financial institutions make
up the market worldwide
• Over $3.9 trillion daily trading volume! By far the
largest financial market; closest rival bond market
volume trails the FX volume with a huge gap

EXCHANGE RATES

The exchange rate is the rate between two currencies of

two countries. You can also call the exchange rate is the
price of a currency is calculated in a different currency.

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Foreign Exchange Market (Forex): where banks, businesses,
governments, investors and traders come to exchange and
speculate on currencies and open 24 hours a day, 5 days a week
with the most important world trading centers being located in
London, New York, Tokyo, Zurich, Frankfurt, Hong Kong,
Singapore, Paris, and Sydney.

Who
trades
Forex?

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 Structure includes 3 latin characters: first 2 characters is
national name, the last character is named currency of
that country
For example:
 The name of the US currency (US dollar) is: USD
 The first two letters ‘US’  The United States
 Last character ‘D’  Dollar
 The name of the British currency (pound) is: GBP
 The first two letters ‘GB’  GREAT BRITAIN
 Last character ‘P’  POUND
 The name of the Japanese currency (yen) is: JPY
 The first two letters ‘JP’  JAPAN
 Last character ‘Y’  YEN
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SYMBOLS
SYMBOL COUNTRY CURRENCY
USD UNITED STATES DOLLAR (Đô la Mỹ)
EUR EURO ZONE MEMBERS EURO (Đồng Euro)
(Liên minh châu Âu)
JPY JAPAN YEN
GBP GREAT BRITAIN POUND (Bảng Anh)
(Vương quốc Anh)
CHF SWITZERLAND FRANC (France Thuỵ Sĩ)
(Thuỵ Sĩ)
CAD CANADA DOLLAR (Dollar Canada)
AUD AUSTRALIA DOLLAR (Dollar Úc)

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 Kể từ sau năm 1848, Thụy sỹ có tên chính thức là
“Swiss Confederation” (tiếng Việt tạm dịch là Liên
minh Thụy sỹ), trong tiếng La Tinh có tên là
Confoederatio Helvetica (viết tắt là CH),

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1 2

1000 yen, 2000 yen, 5000

yen and largest
1SGD=16.400 VND
denominations 10,000 Yen 50SGD=819.400 VND
1JPY=199.56 VND

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3

1USD=22.200 VND 1CAD=17.000 VND

100USD=2.213.600 VND 5CAD=85.400 VND

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 5 6

1 BATH=700 VND 1NZD=15.400 VND

100BATH=70.000 VND 5NZD=76.600 VND

7 8

1AUD=17.000 VND 10.000 IDR=16.600 VND

5AUD=84.600 VND

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 Method of Quoting Foreign Exchange Rates
Direct Quote (Price Quotation) : a direct quote is a foreign
exchange rate quoted as the domestic currency . In other
words, it involves quoting in fixed units of foreign currency
against variable amount of the domestic currency.
In this method, the base currency is the foreign currency, the
quote currency is the local currency valuation.

Indirect Quote (Quantity Quotation) : a currency quotation in

the foreign exchange market that expresses the amount of
foreign currency required to buy or sell one unit of the
domestic currency.
This method is rarely used in some countries around the world.
Typical is the UK, New Zealand, Australia and other countries
using the euro.

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For example, if the Japanese Yen is quoted at US$1 = JPY 100,

and US$1 = C$1.0600, what is the price of yen in Canadian
dollars (both direct and indirect quotations)?

In Canada, the indirect quotation would be:

C$1 = US$0.9434 x 100 (yen per USD) = JPY94.34

The direct quotation would be:

JPY 1 = C$1.0600/100 = C$ 0.0106

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 3 systems of Exchange rate

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FLOATING EXCHANGE RATES

A floating exchange rate is determined in foreign

exchange markets depending on demand and supply,
and it generally fluctuates constantly.

For example: one US dollar might buy one British

pound today, but it might only buy 0.95 British pound
tomorrow. The value “floats”.

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 A FIXED EXCHANGE RATES

A fixed exchange rates : is a country's exchange rate regime under

which the government or central bank ties the official exchange rate
to another country's currency (or the price of gold). The purpose of
a fixed exchange rate system is to maintain a country's currency
value within a very narrow band. Also known as pegged exchange
rate.

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MANAGED FLOATING – DIRTY FLOAT

A system of managed floating in which the

government or the country's central bank
occasionally intervenes to change the direction of
the value of the country's currency.

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 Market Size

FX Market Turnover
4,500
3,981
4,000

3,500 3,210
3,000

2,500

2,000 1,880
1,490
1,500 1,210
1,190
1,000 820
590
500

-
1989 1992 1995 1998 2001 2004 2007 2010

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Turnover by Segment (billions of USD)

Global foreign exchange market turnover by instrument

Average daily turnover in April, in billions of US dollars

Instrument 1998 2001 2004 2007 2010

Foreign exchange instruments 1,527 1,239 1,934 3,324 3,981

Spot transactions² 568 386 631 1,005 1,490

Outright forwards² 128 130 209 362 475

Foreign exchange swaps² 734 656 954 1,714 1,765

Currency swaps 10 7 21 31 43

Options and other products³ 87 60 119 212 207

Memo:
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Turnover at April 2010 exchange rates 1,705 1,505 2,040 3,370 3,981
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Exchange-traded derivatives 11 12 26 80 166

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 Most Traded Currencies

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Turnover by Currency
Currency distribution of global foreign exchange market turnover1

Percentage shares of average daily turnover in April

Currency 1998 2001 2004 2007 2010

US dollar 86.8 89.9 88.0 85.6 84.9

Euro ... 37.9 37.4 37.0 39.1
Deutsche mark 30.5 ... ... ... ...
French franc 5.0 ... ... ... ...
ECU and other EMS currencies 16.8 ... ... ... ...
Slovak koruna2 ... 0.0 0.0 0.1 ...
Japanese yen 21.7 23.5 20.8 17.2 19.0
Pound sterling 11.0 13.0 16.5 14.9 12.9
Australian dollar 3.0 4.3 6.0 6.6 7.6
Swiss franc 7.1 6.0 6.0 6.8 6.4
Canadian dollar 3.5 4.5 4.2 4.3 5.3
Hong Kong dollar3, 4 1.0 2.2 1.8 2.7 2.4
Swedish krona5 0.3 2.5 2.2 2.7 2.2
New Zealand dollar3, 4 0.2 0.6 1.1 1.9 1.6
Korean won3,4 0.2 0.8 1.1 1.2 1.5
Singapore dollar3 1.1 1.1 0.9 1.2 1.4
Norwegian krone3 0.2 1.5 1.4 2.1 1.3
Mexican peso3 0.5 0.8 1.1 1.3 1.3

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 Turnover By Country
1998 2001 2004 2007
Amount %Share Amount %Share Amount %Share Amount %Share
Total 1,969 100 1,616 100 2,408 100 3,988 100
United
Kingdom 637 32.5 504 31.2 753 31.3 1,359 34.1

United States 351 17.9 254 15.7 461 19.2 664 16.6

Switzerland 82 4.2 71 4.4 79 3.3 242 6.1

Japan 136 6.9 147 9.1 199 8.3 238 6.0
Singapore 139 7.1 101 6.2 125 5.2 231 5.8
Hong Kong
SAR 79 4.0 67 4.1 102 4.2 175 4.4
Australia 47 2.4 52 3.2 81 3.4 170 4.3
France 72 3.7 48 3.0 63 2.6 120 3.0
Germany 94 4.8 88 5.5 118 4.9 99 2.5
Denmark 27 1.4 23 1.4 41 1.7 86 2.2
Canada 37 1.9 42 2.6 54 2.2 60 1.5
Russia 7 0.4 10 0.6 30 1.2 50 1.3

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Trading Volume by Country

2,000.0
1,800.0
1,600.0
1,400.0
1,200.0
1,000.0
800.0
600.0
400.0
200.0
0.0

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 Geographic Distribution of Transactions

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Trading Volume by Country

Trading Volume by Country (% of Total)
40.0
36.7
35.0

30.0

25.0

20.0 17.9
15.0

10.0
6.2 5.3 5.2 4.7 3.8
5.0 3.0 2.4 2.1 1.2
0.0

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 Characteristics of FE market

Gold system

Bretton Woods
Systems

Modern System

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FX Market Structure

• It is a globally integrated OTC market

• Large portion of trading takes place in proprietary
electronic trading systems (Reuters & EBS)
– 85%-90% of all inter-bank spot market transaction for the
currency majors
• Large players dominate the market
• There is an accelerated migration to internet
• There are number of multibank internet trading
platforms backed by big players (eg. FXall,
Currenex etc)

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 Market Structure

• 62% of the all FX transactions are cross-border!

• There are two tiers in the market:
– The interbank or wholesale market (multiples of
$1MM US or equivalent in transaction size)
– Brokerage Market (Voice and Electronic Brokers)
• Six broad categories of participants operate
within these two tiers;

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Players in the Market

• Foreign exchange dealers-large banks,

• Other Financial Institutions-Asset Managers, Hedge
Funds, CTAs, Insurance Companies
• Brokers
• Firms
• Central Banks
• Individuals

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 Dealer Banks
• Without a central exchange, exchange rates are set
by market makers—they make the bid and the ask
prices based on the currency movements that they
anticipate will take place.
• The largest banks are the major market makers, and
they handle very large forex transactions—often in
the billions of dollars—on behalf of their clients,
such as other institutions or companies, and also for
themselves. Many banks have traders dedicated to
trading speculatively for the bank.

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• The resulting massive flows of money handled by

these large banks are what primarily drive currency
prices.
• This big network forms the interbank market where
large banks deal with one another, and is where
most of the trading activity takes place.
• The transactions carried out by these major banks
account for the largest portion of daily forex
volume.

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 Central Banks

• Central banks hold the key to controlling the supply and

demand of national currencies; hence they play a very
important role in the forex markets.

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Institutional Investors and Speculators

• Most of these institutional investors and speculators

have international portfolios that consist of both
domestic and international assets like stock or bonds
to diversify their holdings.
• They tend to be very aggressive participants of the
spot forex market as they often facilitate currency
transactions when purchasing or selling foreign
assets.

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 Hedge Funds
• Hedge funds, being largely unregulated, often practice very
different styles of wealth generation from investment
management companies; they tend to adopt more aggressive
forms of trading with the aim of generating a high return on
investment.
• Sometimes, a portion of their assets under management may
be allocated specifically for currency speculations, with the
objective of maximizing their overall profits.
• Large hedge funds and investment management companies
are capable of moving the forex market in their transactions.

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Who does Dominate the market?

• As per 2004survey 53% of the all FX transactions

were among the reporting dealers (primarily large
banks). In 2010, this share declined to 39%.
• As of 2010, 48% of the transactions are with other
financial institutions (Institutions-Asset Managers,
Hedge Funds, CTAs, Insurance Companies)
• 13% with non-financial institutions

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 Transactions by Counterparty

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Large Players Rule!!

• 75% of the turnover in US is conducted by 10

banks in the US!
• Same share is accounted by 12 banks in UK!

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 FX Trading Concentration
Number of banks accounting for 75% of foreign exchange turnover

Country 1998 2001 2004 2007

United Kingdom 24 17 16 12
United States 20 13 11 10
Switzerland 7 6 5 3
Japan 19 17 11 9
Singapore 23 18 11 11
Hong Kong SAR 26 14 11 12
Australia 9 10 8 8
France 7 6 6 4
Germany 9 5 4 5

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FX Dealers

• Banks and non-bank foreign exchange dealers

operate in both the interbank and client markets.
• The profit from buying foreign exchange at a “bid”
price and reselling it at a slightly higher “offer” or
“ask” price.
• Dealers in the foreign exchange department of large
international banks often function as “market
makers.”

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 Top 10 FX Dealers
• Deutsche Bank AG (DB, DBK.XE),
• UBS AG (UBS, UBSN.VX),
• Barclays Capital Plc (BARC.LN),
• Citigroup Inc. (C),
• Royal Bank of Scotland Plc (RBS, RBS.LN),
• JP Morgan Chase & Co. (JPM),
• HSBC (HBC, HSBA.LN),
• Credit Suisse Group (CS, CSGN.VX),
• Goldman Sachs Inc. (GS) and
• Morgan Stanley (MS).

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A Few Words About Retail FX

• The emergence of sophisticated online forex brokers made forex
trading feasible for private individuals.
• In the past, only wealthy individuals could speculate in the forex
market, but now things are very different.
• Anyone can simply open a trading account with a retail forex
broker and trade currencies online with little money upfront, as
forex brokers tend to offer highly leveraged margin accounts for
individuals. The retail investors typically access to the market
through ECNs.
• Electronic Communication Networks (ECNs) consolidate various
bid and ask prices from market makers and other participants
connected to their platform, and display the best available prices
to traders
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 ECNs
• ECNs are electronic trading platforms that match buy and sell orders
automatically at the specified prices
• An ECN broker gets its currency pricing from several liquidity providers
such as banks, market makers or other traders who are connected to the
system. When an order is placed, it is routed to the best available bid or
ask price in its system.
• Spreads on ECNs are variable rather than fixed. Although ECN-type
brokers typically charge a small commission, you can usually get tighter
spreads on many currency pairs due to the large liquidity pool available.
• Risks of trade manipulation are also minimized when using genuine ECN
brokers as compared to brokers that operate dealing desks.

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Dangers of Retail FX Trading

• Unit trading volumes are usually 100,000 units of
currency in retail environment, but some brokers
offer as small as 100 units trading.
• Brokers usually provide from 1 to 10 to 1 to 400
leverage to individual traders. These practices are
under investigation by Futures Trading
Commission, and there is an effort to limit the
leverage offered by the brokers to 1 to 10.
• High leverage and lack of sophistication puts retail
traders at great risk in FX trading environment.

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 The basic currencies are traded in the Forex market?

• USD
• EUR
• JPY
• GBP
• CHF

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BASIC TERMINOLOGY

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 Basic Terminology
Generic Definition:
Exchange Rate= units of local currency per foreign currency
Home/Domestic/Local Currency vs Foreign Currency
Base Currency vs Terms/Quote Currency
Bid price - ask/offer price – spread - PIP
Exchange rate quotes:
Direct quote vs Indirect quote
European Terms vs American Terms

Appreciation/Depreciation

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Base/Unit currency & Price/Quote/Terms currency

• Base Currency-Denominator, usually 1 unit of

base currency is expressed in terms of units of
other currency! Another name used to refer to
base currency is “front” currency.
• Terms currency—#of units per base currency-
other currency in exchange. The other terms used
for terms currency are “back” or “counter”
currency.

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 Reading The Exchange Rate Expressions
• In currency markets exchange rates are quoted in a
particular way. These expressions use three letter
ISO codes for each currency. For instance USD,
EUR and JPY are the codes associated with dollar,
euro and Japanese Yen.
• In market quotations, the base currency followed
by terms currency with a “/” and the units. Units
always are in terms currency.
• We will use these expressions in many exercises.

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Currency Quotations: American Terms

• Currencies can be quoted against the U.S. Dollar in

one of two ways:
• American Terms – Implies that the quotation is
expressed as the number units of U.S. Dollars per
unit of a foreign currency.
– Ex: 1.7500 U.S. Dollar = 1 GBP (base currency)
– 1.7500 Cents per GBP
– GBP/USD 1.7500

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 Currency Quotations: European Terms

• European Terms – Implies that the quotation is

expressed as the number units of foreign currency
per U.S. Dollar
– Ex: 1.1500 CAD = 1 U.S. Dollar (base currency)
– 1.1500 Canadian Dollars per U.S. Dollar
– USD/CAD 1.1500

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American and European Terms

Currencies quoted in Currencies quoted in

American Terms: European Terms:
• EUR Europe • CAD Dollar Canada
• GBP Pound UK • DKK Krone Denmark
• AUD Dollar Austr. • SEK Kroner Sweden
• NZD Dollar NZ • HKD Dollar HK
• MXN Peso Mexico
• JPY Yen Japan
These currencies are base currencies
when quoted against the U.S. Dollar The U.S. Dollar is the base currency when
quoted against these currencies

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 Direct-Indirect Quotes
• Direct quote—the number of local/home currency units per
unit of foreign currency.
In CR USD/CZK 21 (or CZK 21/$) is a direct
quote
In US EUR/USD 1.2996 ($1.2996/€) is a direct
quote
• Indirect quote—the number of foreign currency units per
local/home currency
In US USD/JPY130 (or JPY130/$) is an indirect quote
In Europe EUR/JPY150 (JPY150/ €) is an indirect
quote

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Textbook Expressions
• As you probably noticed so far, the textbook uses a different
convention to express exchange rates.
• For instance in our earlier description by using three letter
symbols we could express 1 unit of dollars in JPY term as
follows:
– USD/JPY 85

• In the textbook you will see an expression like the

following to mean the same thing:
– ¥85/$

• Note that in this case Yen symbol preceded the term of the
currency which was followed by a “/” and the dollar.

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 Tips for avoiding confusion

• If you see three letter symbols following each other

you read the expression as a market quote
• If you see a symbol followed by a number and then
a “/” and another symbol you read the expression as
in the textbook!

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Dealing Room

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Quoting Dealer

Buys and sells a EUR/USD 1.1885-1.1888

currency; in this case EUR

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 Dealer in the business of buying and selling Euro

Bid Ask (Offer)

USD 1.1885 USD 1.1888

Dealer Buys 1 Euro at this Dealer Sells 1 Euro at this

Price (Pays 1.1885 USD for Price (Receive/asks USD1.1888 for
each EURO) each EURO)

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Bid price - Ask/Offer price - spread

– Bid rate —price at which dealers are willing to buy

another currency
– Ask/Offer rate —price at which dealers are willing to
sell another currency
– Spread—difference between bid and offer price
• Profit margin for the dealers
• Bid-Offer Spread % = [(Ask-Bid)/Ask]*100%
(Profit margin in base currency)

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 THE SPOT MARKET

Percent Spread Formula (PS):

%= 100%

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Bid-Ask Spread

• Spread=Ask-Bid=1.1888-1.1885=$0.0003
• In FX jargon this a 3 pips (percentage in points)
spread
• Profit in a round trip transaction for the dealer!
• % Gain= 1.1888-1.1885/1.1888
• =0.0025% (1/1000th of 2.5%)

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 Spread

• Bid-Ask Spread%=(Ask Rate-Bid Rate)/Ask Rate

• May be as low as 1/1000th of 1% for active
currencies
• The bid/ask spread is normally greater for less
frequently traded currencies.
– 0.11% for Peso, 0.05% for Brazilian Real, 0.36% for
Rupiah,
– 0.13% for Baht (average 1995-00)

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Bank Profits on Transactions

o banks quote two rates on transactions:
• bid rate – price bank is willing to pay for foreign
currency
• offer rate – price at which bank is willing to sell
foreign currency
o spread – difference between the bid and offer
o other profits:
o anticipating appreciation => bank raises bid & offer to
buy more of that currency => resells later at high price
making a profit
o anticipating depreciation => bank lowers bid & offer to
sell more of that currency => buys back later at lower
price creating profits

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 PIP (Percentage in point)
• In forex trading, the smallest price change is the last decimal
point.
• Given that most major currency pairs, such as those
involving USD, EUR and GBP, are priced to four decimal
places, a pip in this scenario is a price movement of 0.0001.
For example, if GBP/USD moved from 1.4000 to 1.4001, it
has moved by one pip.
• Comparatively, currency pairs using the Japanese yen (JPY)
are only quoted to two decimal places. In this case, a pip is
a price movement of 0.01.
• For instance, if GBP/JPY moved from 150.00 to 150.05, it
has moved by five pips.
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PIP (Percentage in point)

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 PIP (Percentage in point)

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Lot

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 Example: EUR/USD

• EUR/USD 1.3785/1.3790
• Base currency= Euro Terms Currency: USD
• Bid price= 1.3785; Ask (offer) price= 1.3790
• When Selling Euros, 1 Euro = USD$1.3785; when
buying Euros, USD$1.3790 = 1 Euro.
• Spread = | 1.3785 - 1.3790 | = 0.0005 or 5 pips
• Pip value= $0.0001

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Example: EUR/JPY

• EUR/JPY 117.95/118.00
• Base currency= EUR Terms Currency: JPY
• Bid price= 117.95; Ask price= 118.00
• When selling Euros, 1 Euro = JPY117.95; when
buying Euros, JPY118.00 = 1 Euro.
• Spread = | 117.95 - 118.00 | = 0.05 or 5 pips
• Pip value= JPY0.01

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 GBP/USD

• GBP/USD 1.7400/10
• Base currency= GBP Terms Currency : USD
• Bid price= 1.7400; Ask price= 1.7410
• When selling Pound, 1 Pound = USD$1.7400; when
buying Pound, USD$1.7410 = 1 Pound.
• Spread = | 1.7400 - 1.7410 | = 0.0010 or 10pips
• Pip value=$0.0001

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Exercise1: Bid and Ask Rates

• Your company is an exporter of digital network

equipment to Germany. Due to competition, you accept
to bill your customer in Euros. Your customer wired Euro
10,000,000 into your London bank account. Your
shopping among 31 banks revealed the following Euro
quotes:
Bank Bid Ask
Barclays: EUR/USD1.3310 EUR/USD1.3320
Citibank: EUR/USD1.3317 EUR/USD1.3319
JPM Chase EUR/USD1.3316 EUR/USD1.3321

• a/ Which quote would yield the highest amount of US

dollars for you?
• b/ Which bank has the highest spread?
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 Appreciation vs Depreciation
Calculating Changes in Exchange Rates
• The Brazilian Real exchange rates moved from
USD/BRL3.2020 to USD/BRL3.1606 over two days.
• Calculate the change in the value of USD
– Since USD is the base/foreign currency, the change in the value of
base currency can be calculated as: S(1)-S(0)/S(0)
– S(0)=3.2020 S(1)=3.1606
– S(1)-S(0)/S(0)=3.1606-3.2020/3.2020=-0.01293 or -1.293%
– Dollar depreciated by 1.293%

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Appreciation vs Depreciation
Calculating Changes in Exchange Rates
• The Brazilian Real exchange rates moved from
USD/BRL3.2020 to USD/BRL3.1606 over two days.
• Calculate the change in the value of BRL
– Since BRL is the terms/local currency, the change in the value of
terms currency can be calculated as: S(0)-S(1)/S(1)
– S(0)=3.2020 S(1)=3.1606
– S(0)-S(1)/S(1)=3.2020-3.1606/3.166=0.01309 or 1.309%
– BRL appreciated by 1.309%

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 Exercise2: Calculating Changes in Exchange Rates
July 1997 November 1997

Country Currency (per US$) (per US$

China USD/CYN 8.40 8.40
Hong Kong USD/HKD 7.75 7.73
Indonesia USD/INR 2,400 3,600
Korea USD/KOW 900 1,100
Malaysia USD/MYR 2.50 3.50
Philippines USD/PHP 27 34
Singapore USD/SGD 1.43 1.60
Taiwan USD/TWD 27.80 32.70
Thailand USD/TWB 25.0 40.0

a/ Calculate change in HKD, MYR and TWD. Tell whether it is

appreciation or depreciation?
b/ Calculate change in USD against KOW and INR. Tell whether
it is appreciation or depreciation?

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SPOT TRADING

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 Spot Trading Exercises-3
• Suppose Siemens receives the following quotes for JPY and
TWD.
– EUR/JPY 132.30‐132.80
– EUR/TWD 40.50‐40.90

• a/ How many EUR will Siemens receive from its sales of

TWD 50,000,000?
• b/ How many EUR will Siemens receive from the sale of
JPY 10 billion?
• c/ How many TWD Siemens will receive for EUR5,
000,000?
• d/ How much JPY Siemens need to buy EUR 5,000,000?

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Spot Trading Exercises-4

• a/ You want to exchange

your CAD receipt into
USD. How much CAD do
Dealer Quotes: you have to pay for USD
•USD/CAD1.4314/90 1,000,000?
•GBP/USD1.5210/40 b/ You have USD and want
•USD/CHF 1.2450/80 to buy GBP1,000,000.
How much USD will you
Note that the quotes are in
have to pay?
Market convention, base
expressed first. In USD/CHF c/ I have GBP1,000,000
Quote USD is base, CHF is terms and want to buy USD.

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 Spot Dealing Exercises-4

• d/ I have USD1,000, 000,

and want to buy GBP. How
much GBP should I receive
Quotes: in exchange for USD 1m?
•USD/CAD1.4314/90 • e/ I want to sell
•GBP/USD 1.5210/40 CHF1,500,000. How much
USD shall I receive?
•USD/CHF 1.2450/80
• f/ I have CAD and want to
Note that the quotes are in buy CHF. How much CAD
Market convention, base
expressed first. In USD/CHF should I pay for each CHF?
Quote USD is base, CHF is terms

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Calculating Pip Value

• The value of a pip depends on the currency pair, the

exchange rate, and the trade value. When your forex
account is funded with U.S. dollars and USD is the second
of the pair (or the quote currency), such as with the
EUR/USD pair, the pip is fixed at .0001.
• In this case, the value of one pip is calculated by
multiplying the trade value (or lot size) by 0.0001. So, for
the EUR/USD pair, multiply a trade value of, say, 10,000
euros by .0001. The pip value is $1. If you bought 10,000
euros against the dollar at 1.0801 and sold at 1.0811,
you'd make a profit of 10 pips or $10.

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 Calculating Pip Value

• On the other hand, when the USD is the first of the pair
(or the base currency), such as with the USD/CAD pair,
the pip value also involves the exchange rate. Divide the
size of a pip by the exchange rate and then multiply by the
trade value.
• For example, .0001 divided by a USD/CAD exchange rate
of 1.2829 and then multiplied by a standard lot size of
100,000 results in a pip value of $7.79. If you bought
100,000 USD against the Canadian dollar at 1.2829 and
sold at 1.2830, you'd make a profit of 1 pip or $7.79.

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Pip calculator

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 THE END

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