What is Pip and how to calculate it
Many traders have started trading but are still confused about how to calculate pips. Because there are so many pairs and different ways to calculate them, that’s why traders still can’t memorize how to calculate the pairs they really want to trade.
This article will discuss an easy way to calculate pips and also the profit or loss that traders often encounter from price movements.
1. Definition of Pips
A pip is a unit of point to represent price changes in a trade. Accumulated gains and losses experienced during a current position following the price can be calculated in units of Pips, or Plural of Pips.
2. Trading Contracts
Before starting to calculate pips, the trader must first know the size of the contract in trading. Forex trading cannot be done per dollar, but based on a certain contract size. Generally, there are three types of contracts namely:
– Standard contract: 1 lot = 100,000 units (one hundred thousand units; if the trader trades with the base currency US Dollar, it can be called one hundred thousand USD).
– Mini contracts: 1 lot = 10,000 units (ten thousand units; if the trader trades with the base currency US Dollar, it can be called ten thousand USD).
– Micro contracts: 1 lot = 1,000 units (one thousand units; if the trader trades with the base currency US Dollar, it can be called a thousand USD).
When opening an account with a broker, the trader will determine the type of trading account. After that, if you are going to trade, you will use the lot count, whether to buy or sell 1 standard lot, 1 mini lot (0.1 lot), or 1 micro lot (0.01 lot).
3. Value of Pips On Gold / XAUUSD
One pip point in value varies depending on the currency pair being traded.
On XAUUSD/ Gold, 1 pip is calculated from 1 number behind the comma:
For example: XAU/USD 1325.60 to 1325.70 is 1 pips
Another XAUUSD example:
A.) 1681.55 – 1681.65 = 1 Pips
B.) 1681.55 – 1682.55 = 10 Pips
C.) 1681.55 – 1691.55 = 100 Pips
For example in XAUUSD we call the letters ABCD.EF, then:
The letter F is expressed as Points
The letter E is expressed as a unit of Pips
The letter D is expressed as tens of Pips
The letter C is expressed as hundreds of Pips
The letter B is expressed as thousands of Pips
The letter A is expressed as Tens of thousands of Pips
Then how to CALCULATE PROFIT LOSS PAIR GOLD?
To calculate Profit & Loss trading gold, traders simply remember the Profit & Loss formula, namely:
Profit Loss = Price difference * Number of lots x Contract Size
(Contrac Gold Size is 100/troy ounce)
You take a Sell position on XAUUSD (1lot) at 1350.00, then it closes at 1340.00
Profit Loss= 10 * 1 lot * 100 = $1000
4. Pips Count On EUR/USD & USD/JPY
The one point count for EUR/USD (1.2340) is the 4th number after point 1, while it is one point for USD/JPY (105,670).
EUR/USD 1.23400 to 1.23410 (1 pips)
USD/JPY 105,670 to 105,680 (1 pips)
5. CALCULATING MAJOR LOSS PAIR PROFIT
Major Pair is the term for the currency pair with the highest liquidity and trading volume in forex. Major pairs always include the US Dollar as the base currency or quote currency. Here are some examples of calculating forex profit in a Major Pair:
Direct Pair is a major pair with USD as the quote currency: GBP/USD, EUR/USD, AUD/USD, and NZD/USD
Indirect Pair is a major pair with USD as the base currency: USD/JPY, USD/CHF, and USD/CAD
Pip = Lot Size * Tick Size
Profit Loss = Exchange rate difference * Pips
The pair EUR/USD shows a price of 1.23450, so 1 pip in a standard trading lot is worth.
Pip = 100,000 (standard lot) * 0.00010 = 10.
So every pip on EUR/USD trading 1 standard lot is worth $10.
Open a Buy EUR/USD position (1 lot) at a price of 1.23450 and then closed at 1.23600, the difference in price was 15 pips
Profit Loss = 15 pips * 10$ = $150