What’s a pip in forex trading?

What’s a pip in forex trading?

As a forex trader, you probably heard about many terms, including leverages, pips, lots, spreads, and many others. Today, we are going to tell you out about what a pip is in forex trading. So, clear your concept and thoughts about the term pip through our detailed information article. So, let’s dive in.

What is a pip in forex?

In forex, pip is a unit of measurement that is used to describe the change in value between currency pairs. You can be clearer by knowing that a pip is the very last decimal place in a price value. Moreover, these pips are used to measure gain and loss in forex. 

 For example, if the EUR/USD fluctuates from 1.6230 to 1.6231, that change of 0.0001 is called a pip. Usually, most of the currency pairs go out to 4 decimal places, but there is an exception of Japanese Yen Pairs. They go out only two decimals. As we have seen above, for EUR/USD, it was 0.0001, but in the case of EUR/JPY, it will be 0.001.

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How to calculate the value of a pip?

The economic worth of a pip mainly depends upon the three factors cine with drastic impact over your forex directions while open trades. These three factors are following.

• Currency pair that is being traded
• Size of the trade
• Exchange rate

And now you must be aware of the importance of these factors in forex. Let’s suppose, your $300,000 of trade involves the currency pair USD/CAD, which is closed on 1.0568 after gaining 20 pips. Now let’s  measure the profit in United States Dollar (USD) in the following three steps;

1. Calculate the number of certain currency (CAD) every pip expresses 

For this purpose, simply multiply the amount of trade with a single pip

                       Amount of trade × a pip

Amount of trade= 300,000 

Single pip= 0.0001

                       300,000× 0.0001= 30 CAD per pip

• Determine the value of a base currency (US Dollars) per pip

For this, divide the value of CAD per pip by the number of the closing exchange rates to find out the value of US dollar per pip

Closing exchange rate=1.0568 

Value of CAD per pip= 30

                30÷1.0568=28.39 USD per pip

• Determine the value of total profit or loss of trade

And now the final step where you’ll multiply the number of pips you gained with the number of US dollars per pip to find out the figure of trade’s profit.

Number of pips gained= 20

Number of US Dollar per pip= 28.39

                  20×28.39= $567.80 USD profit

Final Verdict

Here we provide you with detailed information about the pips in forex. Now you may get the answer of what’s a pip in forex trading. Moreover, you can now monetize that even the fractional movements in currency pair effect drastically. Therefore, it’s always being said that before investing big in the forex market, firstly invest your time. Take some time, create demo accounts with different brokers, and then feel yourself a skilled trader. Then go for it.