Published in · 3 min read · Aug 24, 2023
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When it comes to trading in the foreign exchange (Forex) market, understanding the concept of pips and their value is essential. Pips play a crucial role in determining profits and losses, and grasping their significance can greatly enhance your trading strategy.
A pip stands for “percentage in point” or “price interest point,” and it represents the smallest price movement in the Forex market. Typically, currency pairs are quoted with four decimal places, except for the Japanese yen pairs which are quoted with two decimal places. For example, if the EUR/USD currency pair moves from 1.2000 to 1.2001, that is a one pip movement.
Pip value varies based on the size of your trading position. It’s important to know the pip value, especially when you’re calculating potential gains or losses.
The formula to calculate the pip value is:
Pip Value = (Pip in decimal places / Exchange Rate) * Trade Size
For example, if you’re trading EUR/USD and the exchange rate is 1.2000, and you have a trade size of 0.1 lot (which is 10,000 units of the base currency), the pip value would be:
