What
is a pip
We
will now show you how to calculate profit and loss with pips. You may
have noticed that there are a few extra digits at the end of the
Forex quote that's because currency prices typically move in such
tiny increments that they are coded in pips or percentage in points.
Euro
|
/
|
USD
|
1.5755
|
Euro
|
/
|
JPY
|
157.40
|
|
pip
|
pip
|
|||||||
Typically
it prefers to the fourth digit to the right of the decimal which is
equal to 1/100 of 1%. There is one exception and that is with
currency pairs involving the Japanese Yen. For Yen related pairs a
pip refers to the second decimal. Let's review a few examples of
currency price movements. If the Euro versus USD moves from 1.5755 to
1.5745 that the decrease of 10 pips. if the Euro yen moves 157. 40 to
157.80, that's an increase of 40 pips.
So
now that you understand what pip is, the next question is what is the
value of a pip? It varies from currency to currency based on the
relative value of the two currencies in the pair. if the USD is on
the counter side or on the right side of the pair each pip equals one
USD per 100,000 traded. For example if you bought 10,0000 euros you
would earn 10 US dollars for every pip increase in your favour. So in
this example, if the euro dollar moves from 1.5745 to 1. 5775, at the
increase of. 00 30 or 30 pips. To calculate your profit in this
example you would multiply 30 pips by $10 which equals to $300
profit. Conversely if the euro dollar price moved against from 1.5745
down to 1. 5715 he would have lost 30 pips or $300.
The
good news is that the most trading platform automatically calculates
profit and loss on all your trades so you don't have to even
translates the profit and loss (P&L) back into your desired
currency. If you have a USD trading account your P&L will always
expressed in USD even if you are not treating a currency pair that
includes the US dollar.
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