What would be your pip price?
The pip value may be that the purchase price credited to some one-pip movement at a forex trade – it can be used when assigning a standing ‘s losses or profits. Even the meaning of pip value may vary between monies, however because so many major currency pairs are more high priced into four decimal positions, a pip is normally add up to this fourth figure following the decimal point. Back in GBP/USD, for example, 0.0001 is 1 pip.
Because pips are miniature value, forex has been traded in micro heaps, miniature lots and lots: 1000, 10,000 or even 100,000 units of money. Even though price of a pip isn’t that much, through leverage it can represent a significant exposure and can influence your open position considerably.
The pip value is defined by the currency pair being traded, the size of the trade and the exchange rate of the currency pair. To calculate pip value, divide one pip (usually 0.0001) by the current market value of the forex pair. Then, multiply that figure by your lot size, which is the number of base units that you are trading. This means that the value of a pip will be different between currency pairs, due to the variations in exchange rates. However, when the quote currency is the US dollar, the value of a pip is always the same – if the lot size is 100,000, the pip will equal $10.
Usually you will not have to calculate the value of a pip yourself, as your forex broker or provider will do it for you, but it is a useful process to familiarise yourself with.
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Example of pip value
Let’s say GBP/USD is currently trading at a market price of 1.5000, and you have a mini lot of 10,000. The value of a pip is calculated by:
(0.0001/1.5000) x 10,000 = 0.6666
This means that for every pip of movement, your trade would earn or lose 0.6666 pounds.
When trading spot forex, the pip value is usually defined by the quote currency, which is USD in this example. The calculation for the value of one pip of movement in the quote currency is:
10,000 x 0.0001 = 1
In this case, for every pip of movement, your trade would generate $1 of profit or loss. Alternatively, you could multiply your quote currency pip value by the current exchange rate of GBP/USD.
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