When i started trading in 2009, I came across a strange word called "Pip". At that time i thought it is strange to measure the price movement of currency pair using it. But once i gained expereince i realise how much important and efficient it to measure the exchange through pips. It is really simple to understand how pip is calculated.
You will learn to calculate the pip value for any trading currency pair. I will teach you in simple words so that it wont get bored, because usually i found students find it boring when i teach them a little deep about pips and the calculation relating to it. But keep in mind that you wont need to use this method all the time to find pip value because most brokers have automatic pip value calculators which will do the difficult calculation part for you. Now its time to get into lesson
Pip is the smallest movement in exchange value of currency pair. For example if EURUSD exchange rate moves from 1.2345 to 1.2346 then it is said to be moved 1 pip. So 1pip= 0.0001
If you look at the pairs like USDJPY, EURJPY and most of the pair with Asian currency you will find that they have only 2 decimal points in their exchange rates. So in these pairs 1pip= 0.01. Foe example if you take USDJPY if exchange rate moved from 118.00 to 118.01 it is said to 1pip rise in exchange rate.
Update: Few brokers now offer price movement upto 5 decimal points. i.e Major pairs will have 5 decimal places and Asian pairs will have 3 decimal points. The fifth decimal is called as pipeete.
If you want to learn how pip work it would be much easier to do by learning with an example.
Let us take EURUSD pair and assume that it is trading at 1.3000 . To find the pip value of EURUSD you should simple multiply 0.001 with the exchange rate ratio.
For EURUSD with exchange rate 1.3 the exchange ratio is 1/1.3
So let us do the math
multiply 0.001 with 1/1.3 .
Take the answer and multply with the number of currency you are willing to trade. For example if you are willing to trade 1 lot which 0.1 million currency multiply 1,00,000 with the answer you got above. The number you get now is the pip value if you trade 1 lot. In our example it is $7.69 . For every price movement of 1 pip you will either earn or lose $7.69
There are several website online which gives you the updated pip value for all the currency pair. And even your broker will also have this listed in their company website.
Even though there are several ways to find pip value without doing the math manually it is always to good to know how it is actually calculated. Trust me it will help you in lots of situation.
In the next tutrial i will be covering topic on various currency pair and favorable currency pair to trade. So dont miss reading that too. If you have any doubt regarding the pip value calculation drop a comment below and i will be happy to solve your doubts.
Share the post and have a great day.
You will learn to calculate the pip value for any trading currency pair. I will teach you in simple words so that it wont get bored, because usually i found students find it boring when i teach them a little deep about pips and the calculation relating to it. But keep in mind that you wont need to use this method all the time to find pip value because most brokers have automatic pip value calculators which will do the difficult calculation part for you. Now its time to get into lesson
What the heck is PIP?
Pip is the smallest movement in exchange value of currency pair. For example if EURUSD exchange rate moves from 1.2345 to 1.2346 then it is said to be moved 1 pip. So 1pip= 0.0001
It is smallest unit in exchange rates of currency pair
If you look at the pairs like USDJPY, EURJPY and most of the pair with Asian currency you will find that they have only 2 decimal points in their exchange rates. So in these pairs 1pip= 0.01. Foe example if you take USDJPY if exchange rate moved from 118.00 to 118.01 it is said to 1pip rise in exchange rate.
Update: Few brokers now offer price movement upto 5 decimal points. i.e Major pairs will have 5 decimal places and Asian pairs will have 3 decimal points. The fifth decimal is called as pipeete.
How to calculate the pip value?
The pip value depends on two factor. It depends on the currency pair which you have interest in finding the pip and the current exchange rate of the pair. So the pip value of all the currency pair changes over time and it is not constant all the time. For example EURUSD might have 1pip= $10 but after few month it may reduce to $9.5 It is necessary to have a look at the pip value from time to time.If you want to learn how pip work it would be much easier to do by learning with an example.
Let us take EURUSD pair and assume that it is trading at 1.3000 . To find the pip value of EURUSD you should simple multiply 0.001 with the exchange rate ratio.
For EURUSD with exchange rate 1.3 the exchange ratio is 1/1.3
So let us do the math
multiply 0.001 with 1/1.3 .
Take the answer and multply with the number of currency you are willing to trade. For example if you are willing to trade 1 lot which 0.1 million currency multiply 1,00,000 with the answer you got above. The number you get now is the pip value if you trade 1 lot. In our example it is $7.69 . For every price movement of 1 pip you will either earn or lose $7.69
In this example we have found that 1pip value of EURUSD exchange rate 1.3 is $7.69 for 1 lot tradedI can clearly see you face with too much fear after seeing the confusing math and i can also hear from you that "So i do this everyday by myself?" the good thing is you dont need to perform these calculation manually.
There are several website online which gives you the updated pip value for all the currency pair. And even your broker will also have this listed in their company website.
Even though there are several ways to find pip value without doing the math manually it is always to good to know how it is actually calculated. Trust me it will help you in lots of situation.
In the next tutrial i will be covering topic on various currency pair and favorable currency pair to trade. So dont miss reading that too. If you have any doubt regarding the pip value calculation drop a comment below and i will be happy to solve your doubts.
Share the post and have a great day.