What does Pip mean in the Forex market? The concept of Pip in the Forex market
What does Pip mean in the Forex market?
One of the most basic concepts that, is directly related to your success in Forex trading is to know
the concept of pip mean in the Forex market. Knowing this concept will help you to calculate your profit and loss in this large financial market. Follow Zand traders as we introduce you to another term in the Forex market and how to calculate it.the concept of pip mean in the Forex market. Knowing this concept will help you to calculate your profit and loss in this large financial market. Follow Zand traders as we introduce you to another term in the Forex market and how to calculate it.
What is the meaning of Pip in the Forex market?
The smallest price fluctuation on the chart in the Forex market is called Pip. In the Forex market, pip stands for Percentage in point and means unit in percentage. Small changes that occur between the value of two currency pairs against each other are indicated by the Pip unit. Usually the fourth decimal place of the exchange rate is considered Pip. Therefore, it can be said that Pip is the unit of measurement of currency price fluctuations.
Of course, for some currencies, such as the Japanese yen, the second digit is considered the Pip. Or even in some trading software, the fifth number after the decimal point is Pip.
To make this point more clear, we have given an example:
Suppose the price of the EUR / USD pair changes from 1.1401 to 1.1403. In this case, the price of the currency pair has increased by 2 pips.
Now that you are somewhat familiar with the concept of Pip mean in the Forex market, you need to know how the value of each pip is calculated based on different currencies. In the following, we will mention these issues
How to calculate the value of a Pip in the Forex market?
In general, the value of a pip is calculated from the product of that pip in the amount of the lot or the trading volume of that currency pair.
Note that in calculating the Pip, the base currency or quote is considered, so its value varies in different currency pairs.
By default, one lot equals 100,000 units of the base currency and one mini lot equals 10,000 units of the base currency.
In the EUR / USD currency pair, the base currency is the dollar, and if we have a price movement pip, by calculating one lot of trading volume, the value of the pip is equal to:
100000*0.0001=10
Also, if you trade with a volume of 0.1 lots, each pip swing on the chart will bring you $ 1 profit or loss. And if you trade with a volume of 0.01, each pip swing on the chart is equivalent to $ 0.1 for you gain or loss
In fact, the phrase tells us that a pip is moving at $ 10, so when the price moves one lot in the direction of the trade, the trader makes a profit of $ 10, and vice versa, if the price of a pair is one lot. Move in the opposite direction of the trade, the trader loses $ 10.
How to convert Pip value in Forex market
In the previous section, we performed calculations based on dollars. Now we assume that your account balance is not in dollar and is in British pound or GBP. In this case, every dollar calculated in the previous section must be converted into pound.
For this purpose, it is enough to divide one dollar by the exchange rate of GBP / USD. The number obtained indicates how much profit or loss you make on your account balance for each pip of price movement.
Give an example to better understand this concept
If the GBP / USD is 1.2863, since the pound is more valuable than the dollar, dividing one dollar by 1.2863 gives 0.7774. This means that for a pip price movement, when the trading volume is 10000 EUR / USD units, you will have a profit or loss of 0.7774 pounds, and when the trading volume is 100000 EUR / USD units, then the result is 7.774.
We have said before, that there is an exception for the Japanese yen, and when you trade with a volume of one mini-lot, a pip moves the price equivalent to 100 yen, and when you trade with a standard volume of one lot, a pip moves the value Finds the equivalent of 1000 yen.
The final word
In this article, we introduced you the concept of Pip in the Forex market and explained how to calculate it with an example. We hope that by reading this article you will get the answers to your questions about the term pip.
