Though you trade forex (currencies) you have to impute some aspects which are unique for this asset class. The most noticeable is the meaningful ‘pip’. As forex trader you hope to ‘win 50 pips’ else set your lull loss ’25 pips below the current price’. Many beginning traders fight when they hear the expression ‘pip’ for the first time or even tray to calculate the value of a pip. So what indeed is a pip and how do you deliberate its value? It’s easier than you may think. First of all, a ‘pip’ in Forex is the smallest price accumulation in a currency exchange rate. For example, let’s assume a current fare for EUR/USD of 1.3200. If we add 1 pip to the rate, it’ll look this way: EUR/USD = 1.3201.
The last decimal place in the rate is the smallest increment of the value of the EUR/USD pair. When the currency couple price increases, for example, by 10 pips, it means the value of that pair will be: EUR/USD = 1.3200 + 0.0010 = 1.3210. If you had bought the EUR/USD at 1.3200 and sold it at 1.3210 you would have won 10 pips. ‘But how much money is that?’ I can hear you ask.
The pecuniary value from 1 pip in turn depends on the lot sizableness you are trading. 1 standard lot is 100.000 US $, so 1 pip equals 10 US $. As a beginner you probably vocation mini lots (= 10.000 US $) or even micro lots (= 1.000 US $). In this case 1 pip would equal 1 $ (when trading mini lots) or 10 cents (when trading micro lots). In the above example you would have won 100 US $ suppositive you traded 1 banner lot, 10 US $ if you traded 1 mini lot, and 1 US $ if you traded 1 micro lot. But what if you keep an account in Euros, since you live in the Euro zone? Then you have to take the actual exchange rate into account. Don’t worry! Luckily in the internet are pip calculators available for free. Judicatory chose the trade size (1= standard lot, 0.1= mini lot, 0.01= micro lot) and the desired currency pair you want to trade. You can before convert it to your account currency and the value of one pip is sly automatically. The value of the pip is also very serious to calculate your risk properly – a topic I will cover in a later post.