PIPS, PROFITS, AND TRADES

PIPS, PROFITS, AND TRADES 

When you trade Forex you will always calculate your profit or loss in pips. A pip is the smallest price increment in Forex and the term itself stands for “percentage in point”. With most currency pairs you’ll trade a pip is 0.0001. 

The exception to this is currency pairs that include the JPY (Japanese Yen). In that case one pip is .01 of price movement. To add some clarity here let’s talk about how to calculate a per-pip value and then move on to calculating the profit from a single trade. Let’s start by calculating a per-pip value.

 To do so, the formula looks like this: (1 pip with proper decimal placement/currency exchange rate) x amount being purchased = pip value. Let’s assume we were about to trade 1 lot ($100,000 worth) of a currency pair. To give us something to calculate, look at the buy window on the following page.

If we were to buy one lot of the GBP/USD currency pair, at the current ask price of 1.6289, then our per-pip value would be: (0.0001/1.6289) x 100,000 = ~6.13911 Of course we’ve just calculated the per pip value in British Pounds, to convert that number back to USD, we need to multiply by the exchange rate again. 6.13911 x 1.6289 = $10.

It should be noted here that whenever the currency pair includes the USD on the right side of the pair (as is does with GBP/USD), the per-pip value will always be $10 for a full lot of currency or $1 for a mini-lot ($10,000 worth of the currency pair).