What is Forex Pips?

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Pip term for you who already trading forex must be familiar. Yes, “PIP” stands for Point In Percentage. More simply, pip is the value of points, in forex, to calculate the gain or loss. When trading a mini lot (the size of 10k units of currency), each pip is worth approximately one unit of currency in which your account is denominated. If your account is in USD, for example, each pip is worth about $ 1 (depending on the currency pair).

All pairs involving Japanese Yen (JPY), pip is the second digit to the right of the decimal. While the other pair, pip is the fourth digit to the right of the decimal.

You will see that the numbers for pip are in larger numbers. This makes it easy for you to see.

Then there is also a small number after pip. This is called the pip fraction. This allows the price provider to lower the spread is much smaller because they are not limited to giving quotes in the pip only. Surely this will benefit you as a trader, because the spread is a cost component for your trading. Most of the price providers (brokers) who use electronic platforms already provide quotations with 1/10 pip precision.

Now, let’s identify the actual value per pip.

If you use one mini lot EURUSD, you will start with 10,000 as your account trading size. Then, you multiply 10,000 by 0.0001. You will get a value of 1. Why should 0.0001? Since the pip value is at 1/10000 in the pair EURUSD (fourth after decimal).

So the value of 1 pip in EURUSD pair is $ 1. Well, why should the value in $? Yes because the value of pip is in accordance with the second currency, USD.

If your trading account has a US dollar denomination, then you will get a profit or loss of $ 1 on your account for every 1pip movement in the EURUSD pair in the market.

However, if your trading account has a euro denomination, you must convert $ 1 into euro. The trick is you just divide by current EURUSD exchange rate (this article is written) that is 1.1646. The value of $ 1 divided by 1.1646 is 0.8586 euro. Well, now you know that if you have a euro denomination account, then you will get a profit or loss of 0.8586 euros for every movement of mini pip lot EURUSD.

 

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