This guide will focus on the Forex and along with it all the details that will help us understand what a Pip is in Forex.
What is a Pip in Forex?
There are terms that we cannot ignore, for Forex or the foreign exchange market, it is good that we know What is a Pip in Forex, being defined by the smallest possible change in the price of a currency, this refers to the exchange rate or Currency pair related to the minimum existing variation, we have that in this guide there is much to know, so continuing will be the best option to understand more about it.
What is Pip in Forex?
Knowing already What is a Pip in Forex, Its meaning is in the base currency and the quoted currency, with this it is possible to call the calculations for a better understanding, we have that in a currency pair, the base is the first one, an example is that the Eur / Usd pair is trading at 1.2900, in saying this we have as the base currency to the euro and that the cost of this is the one mentioned in dollars, when buying in the market we will be acquiring the euro by selling the dollars , we have then that the Pip in Forex will be the unit of variation of the exchange rate, with this the benefits and losses of an operation can be measured, in relation we start with the example of the purchase of the Eur / Usd pair at 12900 and if we get to sell In 12930 we would earn 30 pips with this operation, entering with the concept of What is a Pip in Forex.
The exchange rate or Eur / Usd pair has 4 decimals, resulting in the minimum possible variation of 0.0001, this is a pip, it is good that we know that mostly currency pairs have this amount of decimals, being The minimum variation for anyone. Now it turns out that in the Japanese yen the minimum variation is 0.01 in Forex, we can start from the example that if in the Usd / Jpy pair we buy at 81.00 and sell at 81.23 we will gain 23 pips, the conclusion to this is that the last decimal of the Currency pair is the Pip and which also indicates the minimum market variation, the basic domain of What is a Pip in Forex is applied
What should we do to calculate the Pip in Forex?
To know how much we have won or lost we have to calculate the value of the Pip in an operation, for this it is important to take into account the volume of the operation or the amount of lots, which will be expressed in the base currency, the value of the Pip will be different according to the lots, where 100,000 units will be the standard lot of the base currency in pairs, where 10,000 units are a minilot and 1000 units a microlot.
Through mathematics we will calculate the value of the Pip in Forex, being in this way knowing what benefit has been obtained and the formula is: (pip size / exchange rate) x the volume of the operation.
Starting from the previous example, we have to buy 1 minilot at 12900 and sell it at 12930:
- - The pip is 0.0001
- - 12930 is the exchange rate
- - - 10,000 euros the volume
- - (0.0001 / 12930) x 10000 = 0.773395 euros per pip
This is the result in euro with the formula, then with this we have to multiply them with the total profit if the account is in euro.
It is regular that the denomination is in dollars, which means that in the previous calculation we will add the multiplication of the exchange rate, thus being:
(0.0001 / 1.2930) x 10,000 x 1.2930 = 1 dollar
As the dollar is the quoted currency, the pip must be according to the lot, micro, mini or standard, it will be equal to 0.1, 1 or 10 dollars, up to this point it is important that we have clear What is a Pip in Forex and Now let's look at the following example.
With Usd / Jpy we buy a minilot at 78.00 and sell it at 78.54, with the formula our result will be:
(0.01 / 78.54) x 10,000 = $ 1,271 per pip
As the base currency in dollars, the final result of the pip will be in dollars, so here will be the calculations, now if it had been that it had been the Eur / Jpy currency pair, the result was 0.9969 euros per pip, to pass it to dollars, we just have to multiply the result by the exchange rate Usd / Eur and then by the amount of pips achieved.
At this point we must already have the domain of the concept of What is a Pip in Forex we must have consideration of other aspects regarding the valuation of the Forex pips and its calculation:
Many brokers express currency pairs with 5 decimals, meaning that in pairs where a pip is the 4th decimal place and 3 decimals in pairs, the value will be the 2nd decimal place, in the case of the Japanese Yen, without complications the pip it is still the 4th or 2nd decimal, now if it is possible that the last decimal in Forex can be interpreted as the tenth part of a pip
The volume of the operation that is done will represent the success in money, once we win 100 dollars in an operation, it will vary if it is by means of a microlote to a standard lot, thus depending on the value of the pip according to the operation and its volume, with this is all we can relate to What is a Pip in Forex with precise details. Concludes the explanation presented by our guide on Forex, where at the same time in relation to this we could count on the specific content to understand what a Pip is in Forex, therefore we hope that our readers give the necessary utility to this content.
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