Do you always hear forex market leaders uttering a term called “PIP”?
You must have heard this during your journey to learn forex and how to trade, and you should know how to calculate it and what it is due to the importance of a pip during trading.
PIP is singular and its plural is PIPS, which is an abbreviation of the term “Percentage In Point” When we want to say that the price has moved, we say, for example, that the currency pair or the price has moved 50 PIP, which is the smallest movement that the exchange rate of the currency pair moves and is considered a measure of the price movement of pairs,
It represents the fourth decimal digit to the right of the pair’s exchange rate, and everything has a special unit of measurement. Just as the unit of measurement of distance is the meter and the unit of weight is the kilo, the PIP is the unit of measurement of price movement.
In the forex market, a pip is calculated mathematically as $0.0001, meaning that every 1000 pip equals $1. In the same way, a pip equals 1/100 of a cent, meaning that every 100 pip equals 1 cent.
The EURUSD pair Has risen from 1.1620 to 1.1630, thus it has risen by 10 pips or 10 PIPS.
According to the previous example, you can calculate the amount of PIPS on any currency pair that ends in the dollar in Forex.
How to know the value of a PIP when trading forex?
The PIP value varies depending on the currency pair and the lot size of the trading contract,
For pairs that end in USD, such as: EURUSD, CADUSD, NZDUSD, and the PIP value can be calculated using the following formula:
– Pip value = contract size x (0.0001 ÷ exchange rate for the quote currency).
As for the pairs that end in Japanese yen JPY, such as: CADJPY, CHFJPY, GBPJPY, they can be calculated using the following formula:
– Pip value = contract size x (0.01 ÷ exchange rate).