Maybe there among you who have a similar question , with this article titled how to calculate pips , lots , and profit / loss may be a response to this question .
What 's pips ? Pip is a point of an increment / decrement the value of currency .
Example : EUR / USD moves from 1.2250 to 1.2251 , it means a change of 1 point in the direction of the stronger . Pip is the added value of every last decimal digit after the decimal . From the pip value we will find out profit or loss . So each currency has a value , respectively , it is necessary to know how to calculate each value of existing content .
Let us take a simple illustration , for example, only we take the example of the pair USD / JPY at a price of 119.80 ( currency note consists of only 2 decimal places after the decimal , the other while there are 4 decimal behind the comma ) .
That is what ?
In the case of the pair USD / JPY is , one pip is 0.01 . Thus calculated as follows :
USD / JPY : 119.80 ( 1 pip is worth 0.01 ) divided by the price of foreign currency . So the pip value 0.01 / 119.80 = 0.0000834
As for the 4 pairs of digits after the decimal point , then 1 pip is 0.0001 , for example, for the pair USD / CHF and USD / CAD , the calculation is as follows :
USD / CHF : 1.5250 ( 1 pip value is 0.0001 ) divided by the price of foreign currency , so a pip value of 0.0001 / 1.5250 = 0.0000655
USD / CAD : 1.4890 ( 1 pip value is 0.0001 ) divided by the price of foreign currency , so a pip value of 0.0001 / 1.4890 = 0.00006715
While in other cases where the U.S. Dollar pair is indirect currency , for example EUR / USD and GBP / USD , the calculation is as follows :
EUR / USD : 1.2200 ( 1 pip value is 0.0001 ) divided by the price of foreign exchange , so the value of a pip so 0.0001 / 1.2200 = EUR 0.00008196
Furthermore, to obtain U.S. dollars then , the calculation is as follows :
EUR x FX price so 0.00008196 x 0.00009999 = 1.2200 , if rounded to 0.0001
GBP / USD : 1.7975 ( 1 pip value is 0.0001 ) divided by the price of foreign currency , so a pip value of 0.0001 / 1.7975 = GBP 0.0000556 , and to get the value of the U.S. Dollar , the calculation is as follows : GBP x price currency so 0.0000556 x 1.7975 = 0.0000998 , when rounded to 0.0001
That's the basic calculation of Pip and the value that will be generated .
What is a lot ?
Next we discuss the notion of lots . Forex market is traded in lots . The default value is $ 100,000 per lot . There is also a mini lot with a value of $ 10,000 . Depending on the type of account you are using is a standard account or a mini account , even now there is a micro account . Currency exchange rate is measured in pips which is the smallest value addition for the currency or currencies . Assumptions : $ 100,000 per lot .
Let us count again to see large lots that will affect the value of a pip .
Example 1 : USD / JPY exchange rate of 119.90 (0.01 / 119.80) x $ 100,000 = $ 8.34 per pip ( 1 pips so that changes to one standard lot is worth $ 8.34 )
Example 2 : USD / CHF exchange rate of 1.4555 ( 0.0001 / 1.4555 ) x $ 100,000 = $ 6.87 per pip ( 1 pips so that changes to one standard lot is worth $ 6.87 )
Next , for other cases where the U.S. dollar is not the base currency .
Example 1 : EUR / USD exchange rate of 1.1930 ( 0.0001 / 1.1930 ) x EUR 100,000 = 8.38 x 1.1930 = $ 9.99734 ( 1 pips so that changes to one standard lot is worth $ 10 per pip )
Example 2 : GBP / USD exchange rate of 1.8040 (0.0001 / 1.8040) x GBP 100,000 = 5.54 x 1.8040 = 9.99416 ( 1 pips so that changes to one standard lot is worth $ 10 per pip ) .
How to calculate Profit / Loss ?
After identifying Pip and Lot , let us know how to calculate the Profit and Loss . We just take the illustration below :
Example: Buy Sell U.S. dollars and Swiss Francs . Quote rate is 1.4525 / 1.4530 . Because we do Open Buy the U.S. Dollar value used is 1.4530 . Tell us buy 1 lot with lots of standard contract size of $ 100,000 in the price of 1.4530 . A few hours later the price moves to 1.4550 and decided to close the trade . The new rate quote USD / CHF is 1.4550 / 14555 . Because we do Close Open Buy Sell from earlier then , the value used is 1.4550 . The difference between 1.4530 and 1.4550 is .0020 or 20 pips . By using the formula described above then , ( .0001/1.4550 ) x $ 100,000 = $ 6.87 per pip x 20 pips = $ 137.40
Remember , we still do not reduce the profits with brokers spread value assigned to the pair . So we still have massive profit minus the cost of the spread ( the difference between the Bid and Ask ) is.
Hopefully this article can serve as a reference on how to calculate the value of pips and calculate profit / loss you get when doing forex trading .
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