Definition has it that a pip is the smallest movement that is possible in the price of one currency against another, and it is important to help calculate pip values quickly and easily, because it is the movement in prices that results in your profit or loss during trading.
Normally, but not always, a pip is 0.0001 or 0.01%, which means that if a currency moves from a price of 1.7650 to 1.7655, it is said to move 5 pips ahead. However, for a standard trading lot with the U.S. Dollar as the quote or counter currency, a pip has a value of $10 but when the U.S. Dollar is the base currency, the pip value will vary with the market price during trading.
It’ll be right here therefore, to say or advice that the easiest way to understand how to calculate pip values is to start by considering currency pairs which involve the U.S. Dollar and we start by considering the situation when the U.S. Dollar is the quote currency as in the case of JPY/USD, GBP/USD or CHF/USD respectively.
To calculate a pip value of currency pairs that involves U.S. Dollar as the quote currency is very easy as a pip will always have a value of $10. For example, calculating a pip value while trading JPY/USD, the market moves in your favor by 10 pips, you will make a profit of $100. Taking the below analysis of a quote of GBP/USD to be 1.9730.
Meaning that the 1 UK Pound is worth 1.9730 US Dollars taking the standard Interbank lot size to be 100,000 UK pounds are worth197300 US Dollars. And now, if the market moves 1 pip so that GBP/USD is 1.9731 then the 100,000 UK Pounds will now be worth 197,310 US Dollars-given a rise of 410 to your account.
Now, suppose the US Dollar is the base currency, with a quote of USD/GBP=0.6439, translating to mean that 1 US Dollar is worth 0.6439 UK pounds and 100,000 US Dollars are worth 64,390 UK Pounds, such that a movement of 1 pip value of 15.53 US Dollars (10 divide by 0.6440). So, differentiate a standard trading lot with a pip value of $10 from the normal one of 0.0001 or 0.01% while trading.
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