What is pips on Forex?

What is pips on Forex?

What is pips on Forex?

Every novice who wants to understand the subtleties of trading on the foreiagn exchange market must know what pips on Forex is, as this concept is mentioned in the Forex literature quite often.

For currency pairs, the PIP or Forex point is usually one decimal point of the us dollar. Also, 1 pips can be equated to one basis point or one hundredth of a percent.

The unit of one pips in Forex is a small indicator of the change in a particular currency pair.

what is pips in Forex

Figure 1. The concept of pips on the chart.

So, if you are still asking yourself the question: 1 pips is how much, then you need to understand for yourself once and for all that this is the minimum change in the price of a currency pair or other asset on the Forex market.
What is pips measured in Forex?

Pips can be measured both in terms of quotation and in terms of the value of the main currency.

This minimum price the size gives investors the opportunity to protect against large drawdowns Forex. Let's say that if 1 pips is equal to 10 basis points, then a fluctuation of 1 pips will significantly change the value of the currency.

There are also Forex brokers that offer their clients to use fractional pips, which are also called fractional pips. This is done to provide an additional numeric digit for some currency pairs. One fractional pips is equal to 0.1 pips. Its meaning is called pippets.

1 pips is how much

Figure 2. Fractional pips.
What does the cost of a PIP depend on?

As you know, each currency pair has its own monetary value of pips. It depends on the following factors:

the currency pair that is being traded;
lot size (volume) for which it is open;
the exchange rate that applies to a currency transaction.

If we take all these factors into account, the change in pips will definitely affect the cost of a particular open Forex order.

Let's consider an example of calculating the profit of a trading operation on the USD/CAD currency pair, which was opened with a volume of $300 thousand, which closed with a take profit at the price level of 1.0568, as soon as 20 pips were received. How do I calculate the profit in US dollars that the trader received?
How do I calculate the cost of pips in Forex?

First, you need to find out the number of canadian dollars represented by each item. To do this, the total amount of the trading operation must be multiplied by 1 pips (300 thousand x 0.0001 = 30 kanad. dollars per pips change).
Then you should perform a mathematical division operation. The volume of canadian dollars per 1 PIP must be divided by the exchange rate at which the order was closed (30/1. 0568 = $28.39 per PIP).
To calculate the total amount of profit or loss after a trading operation, you need to take the profit in pips (points, and we have 20 pips) multiplied by the value of one pips in us dollars (20 x 28.39 = $567.80).

Conclusion

When we told you what pips are on Forex and how to calculate it for a particular currency pair, the trader should not have any difficulties in calculating the profit or loss in dollars after closing a Forex trading order. It is not necessary to perform these mathematical operations to determine the profit or loss for a particular asset. The fact is that in MT4 and 5 terminals, these operations are performed automatically, immediately after the trader's order is closed. So why did we consider the concept of pips, probably because it is necessary to know these basics for every Forex trader who wants to be aware of the growth or fall of their Deposit.

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