Extremely newb question on USD/JPY

Discussion in 'Forex' started by AyeYo, Aug 10, 2009.

  1. AyeYo


    I'm very new to forex, just opened a practice account to try to learn it. There's something I can't understand though, and I've been upable to find anything explaining it.

    We'll take USD/CHF for example:

    Bid - 1.08424
    Ask - 1.08466

    Difference of 4.2 pips, simple enough. On a single, 100k lot, you're looking at a $42 spread. Simple.

    Now... USD/JPY:

    Bid - 96.955
    Ask - 96.974

    Difference of... 19 pips??? It doesn't even read out to the fourth decimal. On a single, 100k lot, I'm looking at a $190 spread???? That can't possibly be right, and I know it's not right because the trade p/l doesn't work out like that.

    What am I missing/looking at wrong? Forgive the blatany stupidity, I'm new (like all of two days) to this.
  2. Don't worry about it, everyone needs to start learning somewhere/somehow, it's good that you ask questions, otherwise you'll never get anywhere.

    The answer:

    Any JPY based pairs round pips to the tenths, not the thousandths, digit. So in your example the Bid is 96.95 and Ask is 96.97; for all practical purposes the difference is 97.4-95.5, or 1.9 pips.

    All non JPY pairs are based on the thousandth digit, and hence you are correct about the 4.2 pip difference in USD/CHF.
  3. AyeYo


    Thank you, much appreciated.

    Another question...

    Buy, 10k lot - .085731 = $8,573.10

    Currently - .085689 = $8,568.90

    I get -$4.20. My p/l is listed at -$7.93. What gives?

    Seems to be staying like that as well, significantly higher than it should be. Am I calculating wrong again?

    It evens shows the correct pip decrease, but the p/l doesn't seem to correspond. With a 10k lot, each pip should be $1, right... or wrong?
  4. i dont know which pair you traded here but from the quote and date it looks like EURGBP.

    You went long EUR, bought 10k, paid GBP 8573.1. Currently your 10k EUR pos. is worth GBP 8568.9. Your p&l is -4.20 in GBP, which converts into about USD -6.91 (GBP p&L * GBPUSD rate). Not sure your 7.93 figure includes interest you were charged for borrowing GBP. So, I would expect you see around USD -6.91 but -7.93 sounds a bit off. Hope this helped.

  5. AyeYo


    Yes, it was the EUR/GBP. This was actually my first real trade. Long at .85731 (little late, I know), sold at .85785.

    I see that I missed a step. So, when trading non-USD based pairs, you have to calculate the profit back into USD from the currency profited off of? I suppose that's blatanly obvious to everyone but me... lol

    Just because it's late and I can't quite seem to wrap my tired mind totally around this... can you sum up the relationship here? Obviously I should have been watching USD/GBP too (oops). So, if the USD had been stronger against the pound, it would have decreased my profits, and if the dollar had been weaker against the pound, it would have increased my profits? Am I getting that right? So that transition back into my home currency sort of acts as a multiplier (either positive or negative)?

    It looks like it's very important to watch out for the relationship of non-USD based pairs to the USD.
  6. for that arguments (!) sake its not very important to monitor USD moves when trading non USD cross currency pairs. The p&l you generate on a single trade generally does not warrant that you hedge your non USD exposure, given you have a USD based account.

    Of course once you generate significant p&l in a non USD currency you may want to "re-patriate" such amount to USD in order to remove that additional risk.

  7. The questions you ask are great, as somebody else said, you have to start somewhere.

    Somebody explained how a trade actually works in the following way and it kinda worked for me:

    Let's say you have the following trade:

    1) Buy 1 lot EURUSD @ 1.4215
    2) Sell 1 lot EURUSD @ 1.4230

    Most people would say you made 15 pips @ $10 per pip = $150. But another way to look at is how things actually changed in your account:

    1) Buy 1 Lot EURUSD @ 1.4215 = +100,000 EUR / -142,150 USD

    2) Sell 1 Lot EURUSD @ 1.4230 = -100,000 EUR / +142,300 USD

    So you can see that the EUR zeros out in your account and the USD leaves you $150 in your account.

    The reason this is useful I think is because it helps you are using non-USD ending pairs.

    Let's say you have the following trade:

    1) Buy 1 Lot USDCHF @ 1.0810 = +100,000 USD / -108,100 CHF

    2) Sell 1 Lot USDCHF @ 1.0850 = -100,000 USD / +108,500 CHF

    You can instantly understand that you made 400 CHF. All you have to do is now convert the CHF into USD by doing:

    400 CHF / 1.0850 = 368.66 USD

    If you are using a pair like the EURGBP, you have to look up the GBPUSD rate at the time of the exit to see how much you made or lost.

    I hope that helps!
  8. AyeYo


    Yes that was a tremendous help, thank you. :D