Pip and pips are widespread terms in the trading industry. In this article, we will explain the basic concept.
What is a pip in forex trading?
PIP is the acronym for the phrase “percentage interest point.” It’s also known as a price interest point. A forex pip is the lowest price increase for a given pair. The pip value is a unit of measurement for currency movement in most currency pairs in the forex trade. The pip between two currencies varies. However, it is generally equal to the fourth decimal place in most currency pairs. For EURUSD or GBPUSD, for example, 0.0001 is one pip.
The pip value, as you know, is the standard by which a currency pair is compared. This also includes the exchanges of the currency pairs as well as the trade size. The significance of pip value is that through pip, you can show the amount of exposure and significantly influence your position. The pip value is defined by the pair of currency, trade value, and the currency pair’s exchange rate.
If you want to learn how to count pips in the MT4 platform for various symbols visit our article.
Currency must be exchanged to enable international transactions. There are a lot of bets and other transactions happening in the forex market. All these take place via speculators who are on the watch-out to earn money as the price of foreign currency moves.
How to calculate pip difference in forex?
To calculate pip difference in the forex pair, you need to count the decimal places where the last decimal place represents 1 pip difference. For example, EURUSD currency pair exchange rate 1.3012 has 4 decimal places, and each pip has the value of 0.0001. From 1.3012 till 1.3013 is 1 pip difference. However, some currency pairs like USDJPY have 1 pip value of 0.01. For example, from 119.20 till 119.21 is one pip difference.
Now let us calculate the forex pip value:
How to calculate a pip value in forex?
To calculate the pip value, divide one pip (usually 0.0001 for major currencies) by the currency pair’s current value. In the next step, multiply that number by your lot size: the number of base units you are trading.
For example, if the exchange rate is 1.3, trading size 1 lot and currency pair EURUSD, then:
Pip Value = (Pip x Trade Size) / Exchange Rate= (0.0001 x 100,000)/1.3= $13.
The absolute value of the pip
To make it simple, each forex account will have a certain number of lots and pips. A lot is a collection or the lowest quantum of a currency that you’re going to trade. And the pip the lowest amount that currency can change.
The value of a foreign currency keeps on varying concerning other currencies. And, the absolute value varies with different currencies and with a particular currency. The pip shows to what extent a pair of currencies move up and goes down. The value of a pip is, therefore, varies across pairs of currencies. This article discusses pip value and the various aspects that go into calculating the pip value.
If the currency pair’s value increases up or goes down 0.0001, the currency pair’s price has gone 1 pip. Likewise, when the price increases or decreases 0.0005, it implies the price has moved 5 pips.
FX pips meaning examples
If the AUDUSD forex pair’s price varies from $1.0000 to $1.0009, it’s said the AUDUSD has risen by 9 pips ($0.0009).
If the price of EUR/USD rises from $1.3040 to $1.3045, the EUR/USD is said to have moved 5 pips.
What are 20 pips meaning in the forex market? For example, when EURUSD rises from 1.3000 to 1.3020, it is 20 pips.
What are 10 pips meaning in the forex market? For example, when EURUSD rises from 1.3000 to 1.3010, it is 10 pips.
What are 30 pips meaning in the forex market? For example, when EURUSD rises from 1.3000 to 1.3030, it is 30 pips.
What are 50 pips meaning in the forex market? For example, when EURUSD rises from 1.3000 to 1.3050, it is 20 pips.
Measuring PIP for the different currency
There are a few currency pairs that are expressed in terms of the second digit following the decimal. The pip value of yen-based currency included EUR/JPY, USD/JPY, AUD/JPY, GBP/JPY using two digits after the decimal.
Thus when the US/JPY goes from 112.00 to 112.90, the price is said to have increased by 90 pips (0.9).
Measuring pips for currency pairs
See more as in this Forex Pip Calculator:
Using this pip difference calculator (above), you can calculate the Eurgbp pip value, Eurusd pip value, Usdchf pip value, etc.
A different way of expressing pips in forex
So far, we have defined a pip in forex as the lowest incremental variation in the currency pair price. However, be aware that a pip’s monetary value is not the same across all pairs of currencies. For this reason, each trader must know the way the pip of the forex currency pair is determined. This helps the currency to gain currency and risk management.
Determining pip in USD trading account
The formula to calculate pip value in USD trading account (or non JPY account) is : (0.0001 / Current Exchange Rate)
The most traded currency in the international currency market is the US dollar. When the US dollar is listed second in a pair, the pip value is constant and does not have an account financed in USD.
On the other hand, if the USD is listed the other way, that it’s not the second, you need to dive the pip value by the USD/x***rate.
Determining pip from a non-USD trading account
The currency account is funded is listed second in a given pair of currencies.
The formula to calculate pip value in non USD account for cross currency pair is:
EURJPY Pip Value = [(0.01 / EURJPY Exchange Rate) x (EURUSD Exchange Rate)] x (Units Traded)
YYYJPY Pip Value = [(0.01 / YYYJPY Exchange Rate) x (YYYUSD Exchange Rate)] x (Units Traded)
Determining pip for pairs of other currencies
It is not that many currencies are being traded in your forex account. Of course, you can have a US account but wish to trade the EUR/GBP (Great Britain Pound).
We will explain how to determine the pip for pairs that are not included in your currency account.
As you know, the second currency is constant if you had an account in that currency. Thus, if you have a GBP count, the EUR/GBP pip is GBP10 for a standard lot.
Make sure to consider the current is proved the pip value: the second currency. Once you know the value, you can determine pip in the particular currency to your desired currency. You can do this by dividing it into the PPP/YYY, where PPP is your currency account.
Facts are:
The constant pip amounts are equivalent to $10 for a standard account.
The constant pip amounts are equivalent to $1 for a mini account.
The constant pip amounts are equivalent to $0.1 for a micro account.
These pip values are coterminous, where USD is listed second. For example, the euro/US dollar, British pound/US dollar, Australian dollar/USD. New Zealand dollar/USD.
Conclusion
If you have a clear understanding of PIP’s notion and how it works, it will help significant benefits; you will be able to judge the quality of the forex market in terms of profitability. Profitability, in turn, is determined by the quality of your judgment and foresight. For all this, you need to keep abreast of the market: the PIP value of the currency pair and the general market condition around. Thus, to realize the best result, calculating a pip value is important, and you need to leverage it.
In this article, you have a PIP calculator – so test it easily using different currency pairs.
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