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Forex: How are Pips counted in Forex?

2019-12-28 08:24:33

Forex is currency exchange and this leads us to inquire about how Pips are counted in Forex, because you have arrived at the right place.

For you know how the Pips are counted in Forex it is necessary to have some knowledge about mathematics, because the time we need to relate this information tends to be considerably enough, because to be able to calculate a pip it is necessary to do Trading, because this makes us able to digest and Calculate the gains and losses executed through Forex.

What is a Pip in Forex?

To know how the Pips are counted in Forex it is important to have knowledge about exactly what a Pip is, since these are simply the minimum possible change in the value of a currency pair, since each currency has its own value, since only it is necessary to calculate the value of a Pip for each of the currencies, for example the euro / dollar pair has to move from 1.3150 to 1.3151, which is equivalent to a Pip.

In the case of the US dollar pairs, it is the base currency and is calculated as follows:

· We will make a simple comparison, imagine that the USD / JPY pair at a value of 119.80 there are used decimals, but only two, but most have 4 decimal places.

ü USD / JPY: 1 Pip = 01.

ü USD / JPY = 119.80.

ü 01 divided by the quotation = value of Pip.

ü 01 / 119.80 = 0.0000834

Although this number may be small, it is important to take into account the relative size of the lot, so it is detailed in Forex.

ü USD / CHF = 1.5250

ü 0001 divided by the quotation = value of Pip.

ü 0001 /1.5250 = 0.0000655

ü USD / CAD:

ü 1.4890

ü 0001 divided by the quotation = value of Pip.

ü 0001 / 1.4890 = 0.00006715

We have a very important recommendation about how Pips are counted in Forex because the dollar is not the base currency, so getting the value of a Pip in dollars requires the following:

ü EUR / USD:

ü 1.2200

ü 0001 divided by the quotation = value of Pip.

ü 0001 / 1.2200 = EUR 0.00008196

The dollar value of this operation is reflected as follows.

ü EUR / quotation

ü 0.00008196 x 1.2200 = 0.00009999

ü By rounding it we would have den 0.0001

On the other hand we have to

ü GBP / USD:

ü 1.7975

ü 0001 divided by the quotation = value of Pip.

ü 0001 /1.7975=GBP 0.0000556

So if we want to get the dollar value we will perform this calculation.

ü GBP x quotation.

ü 0000556 x 1.7975 = 0.0000998

ü We can round it to 0.0001

If you look closely these numbers are probably insignificant, but you have to own large when it comes to investing in Forex.

In Forex, what is a lot?

To know how the Pips are counted in Forex it is necessary to know that it is a lot, these are usually of a standard size because this is equivalent to $ 100,000, but not only do these sizes exist, because, there are micro-lots sizes of $ 1,000 or mini-lots of $ 10,000, from here you can get some minimum increases, since they only have one objective and it is to operate huge amounts of a certain currency where you can get a gain or a loss quite relevant in Forex.

Let's see how the Pips are counted in Forex starting from a standard lot, here is the calculation that Forex performs.

ü USD / JPY: 119.90 rate

ü (.01 / 119.80) x $ 100,000 = $ 8.34 per pip

ü USD / CHF at a rate of 1.4555

ü (.0001 / 1.4555) x $ 100,000 = $ 6.87 per pip

When the dollar is first the calculation tends to change.

ü EUR / USD: rate of 1.1930.

ü (.0001 / 1.1930) X EUR 100,000 = EUR 8.38 x 1.1930 = $ 9.99734 and we round it to $ 10 per pip.

ü GBP / USD at a rate of 1.8040

ü (.0001 / 1.8040) x GBP 100,000 = 5.54 x 1.8040 = 9.99416 and round it to $ 10 per pip.

In order to obtain these calculations that we reflected previously, we used the online broker, since this presents certain important characteristics and allows us to achieve the value of a pip according to the size of the block, here the important thing is to know how the Pips are counted in Forex, because the Pip value depends on the currency we use in Forex.

How to calculate profits and losses in Forex?

The first thing we should know is how the Pips are counted in Forex, because the value of a pip is made according to our gains or losses and here we leave another example.

ü Acquisition of US dollars and sale of Swiss francs.

ü Let's think that the price is at 1.4525 / 1.4530, to the USD, it is important to use the price of ask and this is 1.4530.

ü Acquiring a lot costs $ 100,000 to 1.4530.

ü Cost of the afternoon 1.4550, it is here that we close the operation.

ü Rate 1.4550 / 1.4555, obviously we close the transaction and start another, where it is important to close with the same operation for a price of 1.4550.

ü Difference between 1.4530 and 1.4550 is 0020 or 20 pips.

ü Using the formula above we have the profit of 0001 / 1.4550 x $ 100,000 = $ 6.87 for each pip x 20 pips = 137.40.

When a certain position is opened, we will be subject to spreed, because that is where the difference between Bid / Ask is seen, because from that, the brokers are the ones who execute the operation, because for this point, know how to count the Pips in Forex, It is usually something simple, because in Forex we usually use the price of ask, to buy but to sell we use the price of bid.

What is leverage in Forex?

This is nothing more than the way in which a small investor like us could handle large sums of money, here we will make an exercise think that our Forex broker is a bank, which is responsible for lending us $ 100,000 in order to buy currency , but for this it is necessary to make a deposit of $ 1000, this is practically only a guarantee, here is the importance of knowing how the Pips are counted in Forex, and since it sounds too reliable, this is simply an investment instrument that usually uses Forex

It should be noted that the maximum leverage level tends to be available by making use of the broker with which we have kept working, but that is not all, since it tends to show variation in the investment instrument, this happening from one to another.

To know how the Pips are counted in Forex it is important to know that the brokers have to offer service for retail clients, because even if they only ask for a very low initial deposit, it is required to open a Trading account so that we can execute operations in Forex, as this has among its details the necessary margin of guarantee that we need with the sole purpose of carrying out our operations.

An example of knowing how the Pips are counted in Forex is undoubtedly that a broker offers us a leverage for 1: 100 for every $ 1000 that are in our account, with the sole purpose and is to open operations of 1 lot whose Value is $ 100,000, this means that if we have $ 5000, we are able to handle $ 500,000 which is equivalent to 5 lots in Forex, taking into account that the margin for each lot can vary, from one broker to another.

What is the margin call in Forex?

Forex really is a very complex issue, and the margin of guarantee is usually a margin that allows us to continue with an open position, as this is usually present in case our account can fall well below the requirements demanded by that margin, Well, knowing how the Pips are counted in Forex allows us to make use of the broker in such a way that some open positions can be closed and we return to the required margin, as this prevents us from negative effects and avoid falling into debt, the interesting thing about This is usually done automatically in the Forex market.

Examples on how Pips are counted in Forex.

1. Opening of an account with $ 2000 where we buy a lot of EUR / USD whose requirement is $ 1000, we have the usable margin in terms of money available is $ 2000 to handle positions or losses, because the margin usable by the order of $ 2000 is presented to us with the opening of the lot, whose required margin is $ 1000 and is now available by the margin of $ 1000, if by circumstance we enter losses that $ 1000 would be free, in our account, only that they do not cover the requirements for the maintenance margin and the margin call immediately occurs.

2. We open a Forex account with $ 10,000 here we proceed to negotiate a lot of EUR / USD whose requirement is $ 1000, it is important to be clear that the available margin can be used to open new positions or hold some negative events on the positions current, for this, before opening these positions we have the $ 10,000 of the available margin and when opening the position we would have $ 9,000 of usable margin in Forex.

It is important to have knowledge about the margin of broker that we use because the idea is not to feel risk in relation to the operation that we carry out, because when we fall into losses we will have to deposit more money and that is not the idea, because losing more money of the amount that We have deposited is not Forex business.

This is how we have reached the end of our article on How Pips in Forex are counted, as these are market strategies whose objective is to increase investment through Forex.

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