How Forex Trading Works?

Currency trading is mainly about buy and sell activities. Currencies are traded on a price interest point (normally called pip) system. Every currency pair has their own pip value. The objective of a trader is to hold as many profitable pips as possible. Some pip values are fixed, but some can fluctuate depends on the currency gain or loses strength. Normally I trade by using margin trading, where small deposit is required to control much larger amount in the market. Here I will use 1 percent margin deposit so that $1000 control $100,000 of trade currency. $100,000 is the notional amount. Let me shows some major currency pair with the currency exchange rate and the pip values.Foreign Exchange CalculationBelow will show you how to calculate pip values.Formula is (1 pip value/currency exchange rate) x (Notional Amount)For GBP/USD, 1 pip value is 0.0001. Assume currency exchange rate is 1.7204. Notional Amount is GBP 100,000.Therefore, (0.0001/1.7204) x GBP 100,000 = GBP 0.58If we want to convert back to USD, then GBP 0.58 x 1.7204 and we will get $1For EUR/JPY, 1 pip value is 0.01 . Assume currency exchange rate is 138.96. Notional Amount is EUR100,000 . EUR/USD=1.1789Therefore, (0.01/138.96)x EUR 100,000 = EUR 7.20If we want to convert back to USD, then EUR 7.20 x 1.1789= USD8.49