If you like to know what a pip is?
Forex and Binary options trading requires us to know trading slang used by traders or experts to understand what they mean. One of the terms used frequently is pip, what is a pip and why it’s important to understand it? We will explain in this article for you.
Pip stands for percentage in point, simply to say 1 pip actually mean 1 percent of our committed margin in trading.
For example you buy a position in EUR/USD with you start trading at 1.36000. In some seconds the PAIR increase of 1 pip TO 1.36001 will make you profit of $ ! With Forex it will be a small amount, ( if you trade 100.000 in you forex account with the 1:400 meaning that you relay using $250 of you account) you will make $10 profit with Forex.
How ever if you use Binary options you will make more money in a fix time. If you use 60 sec trading, you use also $250, an there is 1 pit deceivers you will make $200 profit.
1 pip value for each currencies is different, but most of the time it is a change in fourth digit of currencies. Example 1 pip change in EUR/USD means a change of $0.0001 in EUR/USD.
You might already understand what a pip is, but in practice 1 pip value will differ with each account types, and lot size used. We will give you example for standard account and 1 lot position. If you open 1 lot position in EUR/USD in standard account, 1 pip value will be equal to $10. How to calculate it we are showing it you?
This are Forex examples.
1 standard lot is equal to 100,000 unit value in base currency (€100,000 in EUR/USD), this doesn’t mean you need €100,000 to open one standard lot, typical brokers provide us with leverage of 1:100 which let us commit only €1,000 to open the position. Back to pip value, if EUR/USD quote is at 1.3500 when we open position and it increase to 1.4000 it will give us profit of:
Simple way to get the value you can use formula of:
Profit / loss = Lot value x (difference in price)
Profit / loss = 100,000 x (1.4000 – 1.3500)
Profit / loss = $5,000
You can get 1 pip value by this calculation 100,000 x (1.3501 – 1.3500) = $100,000 x 0.0001 = $10
There is other way to calculate 1 pip value by converting your currency to other currency, example using same illustration above. Opening 1 standard lot, you convert $135,000 to €100,000 (dividing $135,000 with 1.3500). When price increase to 1.4000 you close the position by converting your Euro to dollar again with rate of 1.4000, your €100,000 will equal to $140,000 now and you earn profit of $5,000.
The calculation might confuse you, if yes; you can follow this table below:
Account Type Lot Size 1 pip value
Micro 1,000 $0.1
Mini 10,000 $1
Standard 100,000 $10
If you are using Binary Options, it can be more easy to make some profit.
You only need to know Up ore down.
1 pip is more than good to win a trade. How ever the direction has to be correct. To win, it is winning ore losing. Also you will know the outcome of your trading before you start.
The time is fixed, and the output also.
Difference in other currencies pairs
There is exception for several pairs such as USD/CHF, USD/JPY, EUR/JPY, and GBP/JPY. The quote for these pairs have double digit only and no fourth digits like pairs such as EUR/USD, GBP/USD, AUD/USD. Example for USD/JPY you might have 100.20 and 1 pip counted from the second digit, if USD/JPY increases from 100.20 to 100.21 then it’s an increase of 1 pip. The calculation won’t be different with four digit pairs.
There are lots of currencies pairs to explore and you can use guidance given here to calculate your pip value carefully.