Saturday, February 21, 2009
What is Forex Pip?
A pip is the smallest price increment in online forex trading. Pip stands for percentage in point. The value of pip refers to the amount of money you gain/lose for each pip you gain or lose in currency trading.
Exchange rate usually consists of an integer part and 4 decimal points (or 2 decimal points when expressed per 100 units like e.g. dollar/yen). Thus the decimals are expressed either at 10th thousands or hundreds. Each such 0.0001 is called basis point or pip. E.g. a 50 pips change of 1.5000 is either 1.5050 or 1.49.50. The Japanese Yen (JPY) is an exception - it is quoted only to the second decimal point.
CALCULATING PIP VALUES
Pip Value = 1 pip x Trade Size
If you trade 1 lot (1 standard lot, equal to USD 100,000 trade size), the pip value will be:
Pip Value = 0.0001 x 100,000 = 10 (US Dollar)
If you trade 0.1 lot (1 mini lot, equal to USD 10,000 trade size), the pip value will be:
Pip Value = 0.0001 x 10,000 = 1 (US Dollar)
If you trade 0.01 lot (1 micro lot, equal to USD 1,000 trade size), the pip value will be:
Pip Value = 0.0001 x 1,000 = 0.1 (US Dollar)