What Are pips In Forex Trading

What Are pips In Forex Trading

In forex trading, a pip represents the smallest incremental price movement a currency pair can make, excluding fractional pips or “pipettes.”

For most currency pairs, such as EUR/USD, 1 pip is equivalent to 0.0001. However, when trading currency pairs involving the Japanese Yen, like USD/JPY, 1 pip equals 0.01. In the case of trading precious metals like Gold and Silver, 1 pip is valued at 0.01.

How to use this Pip Value Calculator

1. Instrument: Choose the currency pair or financial instrument you are trading. This can include major forex crosses, minors, exotics, popular cryptocurrencies (e.g., ADA, BTC, ETH, LTC, XRP), and various commodities like Gold, Silver, and Oil. Let’s use EUR/USD as an example.

2. Trade size: Specify the size of your trade. Forex pairs typically have a standard lot size of 100,000 currency units per lot, but non-forex pairs may have different unit sizes. You can calculate the pip value based on either lots traded or units traded. Let’s assume a trade size of 10,000 currency units (0.10 mini-lot) for this example.

3. Deposit currency: Pip values vary based on the currency pair and cryptocurrency cross. Current market/exchange quotes also influence them. Select the currency in which your trading account is denominated. This allows for accurately calculating the pip value in your account’s base currency (e.g., AUD to ZAR). Let’s choose EUR as the deposit currency.

4. Click “Calculate”: After inputting the required information, click the calculate button.

The calculator will utilize a live market price feed, including the current interbank rate (displayed in a 5-digit format). It will then provide the pip value based on your selected account base currency (in this example, EUR).

For instance, if you input a 0.10 lot size of EUR/USD with a market rate of 1.21580 and a EUR trading account, the calculator would show the current pip value as €0.8225.

Remember that the pip values may vary for trading accounts denominated in other base currencies, such as GBP or AUD. This variation depends on the current market rate for currency pairs like GBP/USD or AUD/USD. A conversion formula is used to calculate the pip value in different currencies.

Overall, using a pip calculator can help traders determine the value of each pip movement and assess potential profits or losses more accurately.

  • Pip Value = (One Pip / Exchange Rate) * Lot Size

The result would be:

  • Pip Value = (0.0001 / 1.21580) * 10,000 = €0.8225.

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