somrat4030
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Forex Forum, Learn more about forex pips.
Pips in forex trading stands for percentage in points. A pip measures the small price change of an exchange rate worth less than one unit of currency.
What is pips in forex?
In trading, a 'pip' is a very small price movement. The term is short for 'percentage in point'. A pip is essentially the smallest move that a currency could make in the forex market and it is an important unit of measurement in currency trading.
Traders use pips to measure price movements in currencies. Determining the number of pips in a certain price movement is a straightforward process, although it depends on the forex pair being traded.
Currency prices typically move in such tiny increments that they are quoted in pips or percentage in point. In most cases, a pip refers to the fourth decimal point of a price that is equal to 1/100th of 1%.
What is the pip value?
The pip value is defined by the currency pair being traded, the size of the trade and the exchange rate of the currency pair. To calculate pip value, divide one pip (usually 0.0001) by the current market value of the forex pair. Then, multiply that figure by your lot size, which is the number of base units that you are trading.
How to calculate pips?
Professional forex traders often express their gains and losses in the number of pips their position rose or fell.
For example, if the EUR/USD moves from 1.2712 to 1.2713, that 0.0001 rise in the exchange rate is ONE PIP.
So, to calculate the pip value, traders need to divide the number of pips (either by 0.0001 or 0.01 standards) by the current exchange rate of the currency pair, and then multiply that figure by the lot size (standard, mini, or micro). And the received number will be a value of one pip in the base currency (the second currency in a pair). But when a pair has the USD as a base currency, the pip value will always be $10.
First off, let's assume that a trader opened a position for one lot (CNY100,000). So, if the USD/CNY currency pair has generated 2 pips, and the current exchange rate is 6.9876, the value of the pips will be calculated like this: (0.0002/6.9876)x100,000=2.86. So, the trader has received 2.86 US dollars from the trade. Click here to learn more..
When trading in the foreign exchange (forex) market, it's hard to underestimate the importance of pips. A pip, which stands for either "percentage in point" or "price interest point," represents the basic movement a currency pair can make in the market. For most currency pairs—including, for example, the British pound/U.S. dollar (GBP/USD)—a pip is equal to 1/100 of a percentage point, or one basis point, and pips are counted in the fourth place after the decimal in price quotes. For currency pairs involving the Japanese yen, a pip is one percentage point, and pips are counted in the second place after the decimal in price quotes.
Please note, the first currency in an FX pair is the order's transaction currency and the second one is the settlement currency. The pip value is an amount of the settlement currency. For more information, please visit the forum.forex Knowledge Base articles for Settlement currency and Transaction currency.
Moreover, you also can learn more about currency trading strategies and forex trading tips at forex forum.
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