The word pip in Forex, which stands for Price Interest Point in English   , is the smallest unit of exchange rate value. This word is used among all traders in international markets and is a measure of the rate of price change in currency pairs.

What is a PIP? (Price Interest Point)

Suppose if the price of each dollar is 2.7694 euros and changes to 2.7696, we say that two pips have changed. It is often called the fourth digit after the decimal point. Forex traders often use pip to indicate profit or loss.

For example, when a trader receives 40 pips in a trade, it means that he has made 40 pips. The amount of cash earned depends on the value of the pipe.

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The monetary value of each pipe is affected by three factors:

• Currency pairs are trading
• Transaction amount
• exchange rate

As mentioned, a pip is a measure of the price of a currency pair, and each pip is one tenth of a thousandth the price of a currency pair. In a way, the fourth number after the PIP score is called   , but there is an exception, which is mentioned below.

Suppose in the EUR / CAD pair the   current price is 1.2541, but in an hour later the price changes to 1.2549, according to the fourth digit of the score, which has changed from 1 to 9, which is 8 pips. Has increased.

Important Note: The number that comes after the pip is called the pipette. The pipette is originally a decimal point and is 10 times smaller than the pipette, which is not mentioned in this article.

Exception – USD / JPY pipes

When buying major currencies against the Japanese Yen, traders should be aware that in any currency pair with one side being  JPY  . (Like the image below)  A pip is the second decimal place, or one hundredth of the exchange rate.

For example, suppose the  USD / JPY  is currently trading at 102.62 but will change to 102.55 in the next half hour. In fact, the price of 7 pips has dropped.

Important Note: The numbers in jpy currencies after the pip (third digit after the decimal point) are also pipettes and are smaller than pip.

How to calculate the profit or loss of each pipe?

The amount of profit or loss in Forex is based on the amount of pip.

calculation method:

• Trading volume (lot) divided by 10,000 (all currency pairs except one currency pair with one JPY)
• Trading volume size (lot) divided by 100 (for currency pairs that include JPY)

Now the question that arises here is how the volume of the transaction or the lot is calculated?

In general, we have three modes of trading volume:

• Standard Lot: When you trade 1 full lot or the equivalent of 100,000 units of a currency pair.
• Mini Lot: When you buy 0.1 lot equal to 10,000 units of a currency pair.
• Micro Lot: When you buy 0.01 lots equivalent to 1000 units of a currency pair.

For example, suppose you trade one-tenth (0.1) of a currency pair, which equals 10,000 units, so you have to divide ten thousand units by ten thousand, and the resulting number is the value of each pip.

10,000 ÷ 10,000 = 1 (the value of each pip is one dollar)

Second example:

Suppose you bought a standard lot from a currency pair.

100,000 ÷ 10,000 = 10 (the value of each pipe is ten dollars)

This means that if you make a profit of 15 pips, you have made a profit of $ 150. In general, the calculated value of each pipe in different lots for you is as follows

1 lot = $ 10 per pip

0.1 Lots = $ 1 per pip

0.01 lots = 10 cents per pip is calculated.

Note that the example above was general, meaning that if you open 0.5 lots (half lots) you can calculate with a simple thumb account that each pip is calculated at $ 5.

Conclusion

In the Forex market, you should never say how many dollars I make, but we should say how many  pip  we make. Because the amount of profit depends on the amount and volume of your trade, but what is fixed is the  pip  .

Now, for example, I have a method that with $ 100 I can make $ 10 a day. I should not say that my method makes $ 10. Because, for example, if you used this method for $ 200, you would make $ 20.

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