What Is A Pip In Forex?

Introduction

This work will help you learn how to calculate pip using any type of account including the zero spread forex account

What Is Pip In Forex?

Pip is an acronym used in forex trading which represents Percentage in Point. It is the term used in calculating the price movement from the trader’s entry up to his exit point. 

How To Calculate Pips

The fact that the various currency pairs traded in forex have different composite digits that make them up has made it more difficult to calculate pips using just one formula. Hence, pips are calculated based on the number of digits that make up the currency pairs. For standard pairs such as EURUSD, USDCHF, USDCAD, EURGBP, NZDUSD, etc which have six digits and five decimal places, calculating the pip for such a currency  pair is a bit simpler. 

To calculate the pip for EURUSD for instance which has six digits and five decimal places in the example below: EURUSD – 0.99901. The pip movement for this pair will begin with the fourth digit after the decimal place. One pip movement upward for EURUSD from the price given above will be: EURUSD – 0.99911. Similarly, 10 pips movement upwards for EURUSD from the point 0.99901 will be 1.00001. This is obtained by adding 10 to the third and fourth digits after the decimal point. 

Other currency pairs which have six digits but different decimal places are also calculated in a similar manner as EURUSD above. An important point to note here is that the PIP value will always begin with the second to last digit for all currency pairs having six digits irrespective of the number of decimal places they may have. An important example here is USDJPY – 145.205 which has six digits and three decimal places. The PIP value here will begin from the second decimal point.  Thus, one PIP upward movement for USDJPY from   145.205  will be 145.215 while 10 PIPs movement for this pair (upward) will be 145.305.

Nonetheless, for other currency pairs having less than six digits in all. The method to calculate the PIP for such pairs would vary a little. For instance, to calculate PIP for UKOIL which has five digits and two decimal places. (E.g UKOIL – $100.47), the PIP value for this pair will begin from the second decimal place which is also the last digit. One PIP for UKOIL above will be $100.48 while 10 pips for this pair will be $100.58.

What Is The Value Of A Pip For A Micro Lotsize?

The micro lotsize is the smallest unit used in forex trading which is 0.01. The PIP value of any currency pair with USD as its counter currency example EURUSD is $0.1. Ten PIPs on a micro lotsize will be equal to $1.0 and so on. 

What Is The Value Of A Pip For A Mini Lotsize?

The mini lotsize known as 0.1; is ten times greater than the micro lotsize we have seen above. Hence one PIP movement for a mini lotsize having the USD as its counter currency (e.g GBPUSD) will be $1 while ten PIPs movement will be $10.

What Is The Value Of A Pip For  A Standard Lotsize?

The standard lotsize known as 1.0 is ten times greater than the mini lotsize. Hence, one PIP movement using a standard lotsize for any currency pair having the USD as its counter currency (e.g XAUUSD) will be $10 while 10 pips movement will be $100.