Why Are Fractional Pips Important?

Evdokia Pitsillidou, Risk Associate, easyMarkets

A trader needs to feel confident when they are placing trades within the markets. Traders need to be sure that the tools that they are using to place trades are in-line with their trading strategies. In today’s markets there are literally dozens of brokers that provide numerous trading platforms for traders. Prior to jumping into the forex markets traders should research the variety of tools available on the market which will allow them to get the most out of their trading style.

Many brokers offer very similar features but it is important that the trader knows what these features are and how to take advantage of them. For example, the trader wants to be certain that the broker they are working with can support their customer service needs. The trader wants to be certain that there are numerous methods to contact their brokers/customer service when necessary. Some of these communication features are through telephone, fax, chat, e-mail etc. A trader needs to keep an open line with their brokers at all times and by having these tools they will be a head of the game. In addition, it is important that the trader has a dedicated account manager.

Not all brokers are the same particularly when it comes to the look and feel of their trading platform along with the financial products which the trader may have access to. Typical CFD products brokers enable include currencies, metals, energy commodities, agricultural commodities and indices.

Brokers make money through charging a spread on trades which traders place. The difference between the sale and the purchase price is the spread and this is the incremental fee which the broker makes from clearing trades for the trader. What is a pip? A pip is the smallest price movement of a specified traded currency. The term pip means percentage in point and is the difference between the buy and sell price. It is extremely important to note that the trader knows what a broker is charging them when placing trades. The more trades the forex trader places the more money they will be paying for their trading activity.

Some brokers offer fractional pip pricing which means that there is an extra decimal place within the quote. Typically, this means that the quotes are more precise. The more precise quotes allow brokers to provide the best possible pricing to its traders. The fractional pip pricing may usually mean lower transactional costs to the forex customer. In addition, the more precise the pricing is the easier it is for the trader to make more informed trading decisions.

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