PIP and Lots and How to Calculate Profits and Losses in Forex
We often hear from traders in the currency or forex market some terms that we don’t understand, like the movement of the EUR / USD pair today 50 pips, I traded on the GBP / USD pair by opening 10 lots, I won or lost $ 1500 trading, what do these terms mean, what do they mean? The term pip in forex and what does the lot mean and how are wins and losses calculated? This article highlights all of these terms that are the most important fundamentals of trading in the Forex market so you should read them carefully
What’s the Point in Forex or (PIP(
A point is a unit of measure used by traders in the forex market to calculate the smallest movement that occurs in the price movement of a currency pair and a point represents the fourth decimal number from the left of the exchange rate, with some exceptions in some currency pairs, such as B. Pairs that contain the Japanese Yen, the point is calculated for the decimal number The second from the left, the word (PIP) is an abbreviation of the term (Percentage In Point) and this term means the percentage change represented in a point.
PIPETTES are part of a pip, and each pip contains ten PIPETTES and generally comes in the fifth decimal place for currency pairs, while the Japanese yen pairs come in the third decimal place. PIPETTES places a lower bid for the price difference between buying and selling.
The exchange rate of the euro-dollar pair is 1.17703, and the fourth decimal number in red 0 is the one that expresses the point. This means that if the exchange rate increases by two points, the exchange rate
EUR / USD = 1.17723
For the pairs that contain the Japanese Yen JPY, the pip expresses the second decimal number, for example the Euro-Yen currency pair:
EUR / JPY = 124.806
The second decimal place to the right of the decimal point is the pip. H. when the EUR / JPY exchange rate drops 5 pips, the exchange rate is
EUR / JPY = 124.756
What are Forex Trading Contracts or Lots:
The contracts for trading in the Forex market are divided into four sizes offered by most forex brokerage firms:
One standard lot or one (1) standard lot with a volume of 100,000 units of the base currency
Mini lot or 0.1 lot with a size of 10,000 units of the base currency
A micro lot (0.01) with a volume of 1,000 units of base currency
A nano-lot (0.001) (nano-lot) has a size of 100 units of the base currency
Brokerage firms differ in the way they display contracts, with some of them displaying contracts by size and others by number.
Some of them display it by number, such as: 1 contract – 0.1 contract – or 0.01 contract
You can trade forex on any number of multiples of these contracts, for example buy or sell 4 standard contracts, 2 mini-contracts, 6 micro-contracts, or more or less as you like.
As an example, let’s take buying 1.5 contracts on the EUR / USD pair, which means you are buying 150,000 units of EUR / USD. In other words, it is a purchase of a full standard contract and 5 mini contracts.
How is the pip value calculated in forex trading?
Having learned the concept of the point and its determination in the exchange rate of the currency pair, and knowing the sizes of forex trading contracts, in this part we will show how the value of the point is calculated in each currency pair determined by the currency pair and the size of the contract depends on which you are trading and the step of calculating the point is the first step before calculating the profit and loss value of the trades.
Assuming you are trading 1 standard lot or 1 100,000 units of a currency, how is the pip value calculated for currency pairs?
If the US dollar is the counter currency, then:
Pip value = (pip decimal ÷ exchange rate) x contract size x exchange rate
In this case, the point value is always 10 USD regardless of the exchange rate
Example: Suppose the currency pair is the British Pound to the Dollar and the exchange rate is 1.29000
(0.0001 ÷ 1.29000) x 100,000 x 1.29000 = $ 10
Hence, we can say that as a general rule, when the US dollar is a counter currency, the pip value for each trading contract is as follows:
For a standard contract of 1.00 and an amount of 100,000, the pip value = $ 10
In a mini lot of 0.10 and 10000, the pip value = 1
With a microlot of 0.01 and an amount of 1000, the pip value = $ 0.10 = 10 cents
If the dollar is not a counter currency, we apply this equation to the rest of the currency pairs:
Pip value = (pip decimal ÷ exchange rate) x contract size
Example: USD / CAD has an exchange rate of 1.32400 and we want the pip value of the standard lot 100000. to calculate
Formula for calculating the point price