What Are Pips In The Forex Trading Business

What is a pip in the forex trading business and 1 pip is equal to how many dollars? Pips stands for Point In Percentage and is the smallest unit of currency price movement.

And the dollar amount of 1 pips is determined by the type of account you choose when creating a forex trading account.

Example of Counting Pips

I made a profit of 100 pips from trading GOLD or XAUUSD when I opened a Sell position on XAUUSD at 1770.00 and closed a Sell position on XAUUSD when it was 1760.00.

Where did the 1000 pips figure come from? This figure is obtained from the price difference when opening and closing Sell XAUUSD positions, 1770.00 - 1760.00 equals 10.00.

After knowing the difference is 10.00 then we multiply it by a multiplier of 100 then we will get the amount of forex trading profit in pips, which is 1000 pips. Why the multiplier of 100 because there are 2 digits behind the comma of the price.

Below is another example of getting a profit in the forex trading business.

You open a Sell EURUSD position when the price is 1.40000 then the currency price moves according to what you expect and you close your trading position when the EURUSD currency price is at 1.22000.

Now, how much profit do you get in pips?

The profit you get is 1.40000 minus 1.22000 then multiplied by a multiplier of 100.000 the result is 18000 pips. Why the multiplier of 100,000? because there are 5 digits behind the price comma. If 3 digit is behind the comma then multiply by 1000.

Choosing 4 Digit or 5 Digit Forex Broker

If we talk about price accuracy then we will meet brokers who only calculate currency prices up to 4 digits behind the comma and 5 digits behind the comma.

Forex brokers who calculate currency price movements up to 5 digits behind the comma are more accurate than forex brokers who calculate 4 digits behind the comma.

4 Digit Forex Broker

For example, you open an account at a forex broker that only displays currency prices up to 4 digits behind the comma.

And you get a profit when you open a Sell EURUSD position when the price is 1.3333 and close a Sell EURUSD position when the price is 1.3300.

As a result you will get a profit or profit of (1.3333 - 1.3300)x10,000) equal to 33 pips.

5 Digit Forex Broker

Suppose you open a Sell EURUSD position when the price is 1.33330 and close a Sell EURUSD position when the price is 1.33104.

Then you will get a profit or profit of ((1.33330 - 1.33104)x100,000) equal to 226 pips.

Well, you already know the difference, right? Now which forex broker do you choose?

For me, I would prefer a forex broker who calculates currency prices up to 5 digits compared to only up to 4 digits because the profit I can get will be higher.

After we know how to calculate profit in pips. So we also have to know how to know 1 pips is equal to how many US Dollars.

1 Pips How Much Dollar

Before we talk about the value of 1 pips to how many dollars, we need to know that this depends on the type of account we choose when opening a forex trading account.

Standard Account 1 lot equals $100,000; Mini account 1 lot equals $10,000; and Micro account 1 lot equals $1,000.

What are lots? A lot is a unit or volume of currency that we buy in the forex market. and for more details, please follow the brief explanation below.

If you choose a Standard account, 1 pip will never equal 1 pip when using a Mini and Micro account.

Calculating Pips When USD is the Base Currency

As an example, we take the USDCAD and USDCHF currency pairs using 5-digit forex broker facilities.

The following is the formula used to calculate pips in US Dollars (USD) for currency pairs 4 digits behind the comma.

1 pips (USD) = (0.0001/USDxxx rate)

USDCAD Currency

What is the value of 1 pip in USD when the USDCAD rate is 1.37250.

Based on the above exchange rate, we can calculate the value of 1 pips in dollars by dividing 0.0001 by the USDCAD rate of 1.37250 so that 1 pip is $0.00007286.

If you use a Standard account and open a position of 1 lot then your 1 pip value equals $7,286 ($0.00007286 x $100,000).

If you use a Mini account and open a position of 1 lot then your 1 pips value will be $0.7286 ($0.00007286 x $10,000).

If you use a Micro account and open a position of 1 lot then your 1 pips value will be $0.07286 ($0.00007286 x $1,000).

USDCHF . Currency

How much is 1 pips in USD when the USDCHF rate is 0.89950.

Based on the exchange rate above, we can calculate the value of 1 pips in dollars by dividing 0.0001 by the USDCHF rate of 0.98950 so that 1 pip is $0.000110106.

If you use a Standard account and open a position of 1 lot then your 1 pips value is equal to $10,106 ($0.000110106 x $100,000).

If you use a Mini account and open a position of 1 lot then your 1 pips value equals $1.0106 ($0.000110106 x $10,000).

If you use a Micro account and open a position of 1 lot then your 1 pips value is equal to $0.110106 ($0.000110106 x $1,000).

USDJPY Currency

How about USDJPY currency?

Because the USDJPY currency is a currency with a 2-digit number behind the comma, 1 pips is equal to 0.01.

And because we use the services of a more accurate forex broker, the amount of digit behind the comma is 3 digits.

But 1 pips is still equal to 0.01 and the formula we will use to calculate 1 pips in US Dollars (USD) is as follows.

1 pips (USD) = (0.01/USDxxx Rate)

So when the USDJPY rate is 109,021 then

1 pips on Standard account equals $9.17 (($0.01/109.021) * $100,0000) per 1 lot.

1 pips Mini account equals $0.917 (($0.01/109.021) * $10,0000) per 1 lot.

1 pips Micro account equals $0.0917 (($0.01/109.021) * $1,0000) per 1 lot.

Counting Pips When USD is Counter Currency

If we want to know "1 pips how many dollars" when the US Dollar (USD) is the counter currency, the calculation will be slightly different.

For example, let's say we will calculate the value of pips in USD when the EURUSD is 1.22220 and GBPUSD 1.28760 with 1 lot holding each currency.

Actually, when USD is the counter currency, 1 pip is always equivalent to $0.0001.

How come? Yes, you can, because 1 pip in USD is equal to 0.0001 divided by the exchange rate and then multiplied by the exchange rate itself.

1 pips (USD) = ((0.0001/xxxUSD rate)*xxxUSD rate) = $0.0001 

So, as long as the USD is the counter currency then.

1 pips on Standard account equals $10 ($0.0001 * $100,0000) per 1 lot.

1 pips Mini account equals $1 ($0.0001 * $10,0000) per 1 lot.

1 pips Micro account equals $0.1 ($0.0001 * $1,000) per 1 lot.

How about it, do you understand how much is the dollar by calculating 1 pips?

Example of Calculating (Profit/Loss)

You open a Sell EURUSD position when the price is 1.22220 as much as 2 lots and then you close all those positions when the price hits 1.21221.

Now what is your profit when using a Standard account?

Profit (pips) = 99.9 pips from calculation ((1.22220 - 1.21221)*10,000)

Volume = 2 lots

Profit (USD) = $1,648.23 from calculation ((0.0001/1.21221)*$100,000)*99.9 pips*2 lots

That means you get a profit of $1,648.23 when your position matches the movement of the EURUSD currency.

Why is it so complicated?

Take it easy, because all the calculations above have been carried out by the forex trading platform facilities automatically and accurately.

You don't need to calculate that complex, it's just that you can use the calculation as reference material.

Pips Calculator

If you want to prove the above formula; You can use the following calculator below.

Pip Calculator widget is provided by DailyForex.com - Forex Reviews and News


How about it, have you been helped by the pips calculator, right?

Tweet

Subscribe to receive free email updates: