A Forex profit calculator can make all the difference in the world between a successful trading strategy and mounting losses. Of course, there are numerous factors which you will need to consider. The lot size, the notion of compounded interest and currency pairs are key concerns.
We should also mention that a good investment calculator will likewise address exposure limits. In other words, how much money are you willing to commit during any given trading cycle? “Pips” are commonly used by those who are looking to hedge their exposure and to mitigate excessive levels of risk.
Let us look at the notion of pips in greater detail as well as how they relate to a Forex calculator in order to appreciate the big picture.
What is a Pip in Relation to Forex Trading and a Profit Calculator?
You may have noticed a profit calculator online that contained unique fields known as “pips”. Pip is an acronym for “point in percentage”. A pip represents the smallest possible change of the value between two currencies.
A more technical definition involves the movement of a single digit in the fourth decimal place (1.0023 to 1.0024, for example). Traders will often use a markup calculator to more accurately track these movements; sometimes referred to as points or basis points in certain circles.
How Can You Determine the Value of a Pip?
The good news is that will normally require nothing more than a bit of simple mathematics. You will first determine the lot size (for instance, 100,000 units of a specific currency). This value will then be multiplied by 0.0001. I this situation, 100,000 units would equate to 10. Of course, this can be measured in dollars, euros, pounds, and similar forms of currency.
It should also be noted that even the simplest Forex calculator will offer the ability to automatically calculate these figures with the click of a button. This can save a great deal of time while avoiding any potential mistakes along the way.
Why Might Pips be Important When Using a Profit Calculator?
The main purpose of a profit calculator is to enable the trader to better appreciate his or her position at any given time.
While it is always possible to appreciate larger movements associated with the relationship between two different currencies, pips can be used to enact smaller trades as well as to see where the value of a specific currency may be headed from a short-term perspective.
Another important function of the use of pips in conjunction with a profit calculator involves the difference between the bid and ask prices. This is often referred to as the “spread”.
This can be employed in order to more accurately determine profit/loss margins as well as to appreciate the level of risk attributed to two currency pairs. As a rule of thumb, larger spreads are associated with higher risk levels (and higher profit margins).
Can Pips be Used with Other Functions Within a Profit Calculator?
Pips are often employed by traders in tandem with many other utilities and tools. For example, they can be used alongside a currency converter calculator to better appreciate the disparate values between two different currencies (such as the United States dollar and the British pound).
Pips can be leveraged in order to determine the lot size of a specific trade (and vice-versa). As the concept of a pip is not applicable to a single currency, it can even be used in tandem when trading cryptocurrencies.
Common search terms such as “profit calculator crypto” and “profit calculator Ethereum” will often provide online tools which allow users to enter pips into the equation.
Can Pips be Used in a Conservative Trading Strategy?
This is a bit of a loaded question, as the movement of pips is simply another reflection of the overall change in value between two base currencies (albeit a more exacting method). The main benefit of using pips when trading Forex currencies involves the fact that extremely small lot sizes can be used.
Thus, the trader in question will be limiting the amount of his or her overall exposure at any given time. Other methods such as incorporating a stop-loss strategy can likewise be excellent ways to mitigate the volatility often associated with the currency markets.
Ultimately, pips are merely another way to appreciate the price changes between two currencies at a specific time.
This concept is rather straightforward once we appreciate their basic mechanics. It is still worthwhile for traders of all levels to appreciate how pips can be used in order to better hone their strategies and to turn a reasonable profit over time.