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How a Pip Calculator Can Help You Understand Your Trading Better


January 30, 2020
How a Pip Calculator Can Help You Understand Your Trading Better

Calculating Pip value by hand in a busy market can be challenging. From platform upkeep to technical examination, it can be impractical for an active seller to take a break to determine the Pip value. Luckily, there is a tool known as Pip Calculator which makes the task easier.

The pip calculator is a kind of forex calculator that you can use to determine the value of the pip in the currency of your account. This assists in controlling better the risk involved in the transaction.

Use of a Pip Calculator

Using a Pip Calculator is an easy process. Depending on the situation, identify the following positions in connection with trading and enter the corresponding values ​​directly into the Pip calculator:

  • Currency Pair: Many currency pairs are available, including major, minor, exotic and cross.
  • Price: A price is required for the selected pairs.
  • Account medium of exchange: The base medium of exchange of the transaction account is required for the conversion.
  • Transaction size: Estimated leverage, usually in lots or units, is a key element of pip value. As several units in this transaction increases, the value for each pip increases, as does the risk and reward.
  • Current conversion rate: The present exchange rate between the name of the trading account and the counter currency of the transacted pair is required for the conversion.

After entering the values, the Pip Benefit Calculator will help you calculate the profit you will receive before trading. In the event of a loss, the pip calculator will let you know.

The Advantage of the Pip Calculator

The pip value calculator contributes to more effective risk management. The calculation of the pip is not specific to the forex strategy. That means the traders can make use of the Pip calculator to make useful decisions regardless of the type of strategy they use for their operations in the forex market.

What is a PIP?

PIP is a measurement unit used to change the value between currencies. It is an abbreviation for Point in Percentage. PIP is represented by moving a digit to the fourth decimal position in a distinctive forex quote.

For instance, if the EUR/USD exchange rate changes from 1.1040 to 1.1041, the profit will be $ 0.0001. The profit in this instance represents one PIP. Pips are usually the last decimal place in a price quote. Majority of the pairs give four decimal places, but there exist some exceptions.

For example, Japanese yen pairs (they show two decimal places). For instance, for USD / JPY it’s 0.01, while for EUR / USD it’s 0.0001.

How much is a Pip Worth?

Usually, the PIP is 0.01% or 0.0001. Let us illustrate this with an instance. Presume you are dealing with EUR/USD, one of the most traded pairs in the Forex market. The Price is 1.2452. It moves up to 1.2458. This means that the EUR/USD has risen by six pips.

Since the listing currency or counter currency is currently the USD in currency pairs, the calculation of the PIP value is simple. In this instance, 1 PIP is $10 per standard lot. In the example above, the exchange rate of EURUSD 1.2542 means that 1 Euro is equivalent to USD 1.2542.

How many Pips is a Lot?

For a standard lot of 100,000 units, it means that 100, 000 EUR correspond to 125,420 USD. If the exchange rate changes by 1 PIP, it will become 1.2543. In case you trade a standard lot of 100,000 units, it means that you now have 125,430 USD, or in other words, you have made a profit of 10 USD.

If the USD is a counter currency or quote currency, one pip on a standard lot is always 10 USD. However, in case you trade a mini lot of 10,000 units, one pip equals 1 USD.

How is Pip Value Calculated in Forex?

A question asked by most of the traders is, how is pip calculated? The value of the pip is calculated by multiplying it (0.0001) by a certain lot/contract size. In place of mini lots, this is 10,000 units, of the Base Exchange and for standard lots, 100,000 units. For instance, if you are considering EUR / USD, the pip movement in a standard contract is $ 10 (0.0001 x 100,000).

The ability to calculate the worth of a pip assists forex brokers to allocate a monetary price to their profit and stop-loss goals. Instead of just analysing the movement in pips, they can regulate how the cost of their transaction account (stocks) changes as the money market moves.

It is significant to understand that the value of a pip differs in different exchange rate pairs. This is for the reason that the value of a pip is always displayed in the offer currency EUR/USD in a variable currency. This is different if you trade different currency sets. When trading EUR/USD, the pip value is displayed in USD and GBP/JPY is traded in JPY.

Conclusion

Pip calculator is an essential tool when it comes to forex trading. Every person who is planning to enter into forex trading business ought to learn how it operates. The pip value obtained will assist you in making an informed decision and avoiding risks.

Categories: Education , Trading

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