What is a Pip in Forex?
What’s a pip?
You’ve probably heard of the terms “pips,” “points“, “pipettes,” and “lots” thrown around, and now we’re going to explain what they are and show you how their values are calculated.Take your time with this information, as it is required knowledge for all forex traders.To get more news about pips in forex trading, you can visit wikifx.com official website.
Don’t even think about trading until you are comfortable with pip values and calculating profit and loss.
What the heck is a Pip?
The unit of measurement to express the change in value between two currencies is called a “pip.”Most pairs go out to 4 decimal places, but there are some exceptions like Japanese yen pairs (they go out to two decimal places).
What is a Pipette?
There are forex brokers that quote currency pairs beyond the standard “4 and 2” decimal places to “5 and 3” decimal places.
They are quoting FRACTIONAL PIPS, also called “points” or “pipettes.”
If the concept of a “pip” isn’t already confusing enough for the new forex trader, let’s try to make you even more confused and point out that a “point” or “pipette” or “fractional pip” is equal to a “tenth of a pip“.
How to Calculate the Value of a Pip
As each currency has its own relative value, it’s necessary to calculate the value of a pip for that particular currency pair.
In the following example, we will use a quote with 4 decimal places.
For the purpose of better explaining the calculations, exchange rates will be expressed as a ratio (i.e., EUR/USD at 1.2500 will be written as “1 EUR / 1.2500 USD”)
How to Find the Pip Value in Your Trading Account’s Currency
The final question to ask when figuring out the pip value of your position is, “What is the pip value in terms of my trading account’s currency?”
After all, it is a global market and not everyone has their account denominated in the same currency.
This means that the pip value will have to be translated to whatever currency our account may be traded in.
This calculation is probably the easiest of all; simply multiply/divide the “found pip value” by the exchange rate of your account currency and the currency in question.
If the “found pip value” currency is the same currency as the base currency in the exchange rate quote:
Using the GBP/JPY example above, let’s convert the found pip value of .813 GBP to the pip value in USD by using GBP/USD at 1.5590 as our exchange rate ratio.
If the currency you are converting to is the counter currency of the exchange rate, all you have to do is divide the “found pip value” by the corresponding exchange rate ratio:
