Forex in five minutes or less a pip is aunit of measure to show the change in value between two currencies let's say you're looking at your tradingscreens the euro US dollar currency pair and you see the price is at one pointtwo five zero zero now you look back at your screen and the price is one pointtwo five zero one so what do you need to know this stuffwell you need to know what you're doing so you know how to make money from forextrading knowing what you're doing the start is knowing that each currency hasits relative value in this case relative value means relative to the othercurrency in the pair.
Say the euro is trading against the US dollar at onepoint two five zero zero this means that you could exchange one euro for onepoint two five zero zer o US dollars reading it it says one euro is worth onepoint two five zero zero US dollars.
The change of value in the countercurrency cake was the pip value.
The pip value is relative to the base currency.
In this case the euro is the base currency.
Let's calculate the value but before wedo this it's easier if we understand LOTS.
If you buy a mini lot euro US dollar you are actually buy ten thousand euro and atthe same time you sell the same value in US dollars So if the quote is at one point two fivezero zero you actually need 12,500 US dollars to balance the value of the10,000 euro.
Let's calculate the pip value of a minilot.
Take a mini lot of 10,000 and multiplythat by point zero zero zero one.
So ten thousand multiplied by point zero zero zero one equals one.
In this case we know that the value of one pip in a mini lotis the one unit of the quote currency you probably guessed that if we did thiswith a standard size lot of a hundred thousand the pip value would be tenunits and likewise a micro lot would be zero point ten units this is great newsbecause you can literally start small in this business and build up as you learnhow to trade currency.
How to calculate PIP value in the basecurrency.
Remember we assume that we trade a mini lot of 10,000 and hence every pip represents a value of one US dollar.
Ifthe euro US dollar is trading at one point two five zero zero meaning thatone euro equals one point two five zero zero US dollars.
We take the value of onepip to be one divided by one point two five zero zero equals euros of zeropoint eight 0.
So all this boils down to this broadly speaking.
If you were tobuy one mini lot in our example, for each pip that price moves up you will make aprofit of 0.
So if the price moves up 100 pips you will have made aprofit of 80 euros.
You now know one what a pip is and – tow how to place value on that pip.
Do you actually need to know this in order to try successfully nobecause 99% of dealing platforms work this out for you.
But it shows a degree of professionalismto understand what you're doing and how your trading account is being traded byyou or someone else.
What if your training account is not inUS dollars let's say it's in GBP how will you know what each pip movement means in terms of your GBP account balance? Let's work it out it's prettyeasy.
Assuming your brokerage account is held in GBP you want to know what eachpip means in GBP value when you're to say trading the euro US dollar.
Well, takeour pip value of one u.
dollar divided by the gbp/usd exchange rate so onedivided by that figure equals zero point seven one four 3 GBP.
So zero point sevenfour one four three will be added to your account for each pip profit youmake whilst you're trading the euro US dollar.
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