Calculating PIP value

 

Calculating PIP value

-Forex Trading Perspective-
Calculating value of a PIP is a necessary step in the understanding of  profit/loss, for it enables effective implementation of risk management strategies in Forex trading.

PIP values are usually calculated in lot or volume sizes of; Standard lot (100,000 units or 1.0), Mini lot (10,000 units or 0.1) or Micro lot (1,000 units or 0.01).

Therefore, given a quote, we calculate PIP value by multiplying the given volume by ‘0.0001’ in USD/other currency pairs, and ‘0.01’ in JPY based currency pairs.

For example, a 10,000 EURUSD quote, we can get a PIP value in USD by multiplying 10,000×0.0001=1. Which means; a change (up-ward or down-ward movement) of 1 PIP in this example equals 1 USD.

In other words, 1 PIP in this example would equal to a profit or loss of 1USD.
And a 20,000 EURUSD quote, PIP value in USD will be (20,000×0.0001) =2USD per PIP, so on and so forth.

So, given 10,000 USDJPY quote, the PIP value would be (10,000*0.01=100JPY). Remember Yen based quotes are two decimal places.
And for a 30,000 USDJPY quote, it will be 300JPY per PIP (30,000*0.01=300JPY), so on and so forth.

NB: In the above examples we calculated PIP values based on Quote currency. However, it is equally useful to get PIP values expressed in the Base currency of your account. In this case, division calculations are applied to convert the PIP value from quote to base currency.

Now, using USD as our Base currency, we can for instance convert the above 300 per PIP in JPY to a value per PIP in USD (using the current exchange rate) as follows: -
300 /112.38 =2.67USD per PIP.

NB: "112.38" was the USDJPY exchange rate on the day of this writing.

Learning more about PIPs, we realize they are a key factor to trading Forex.

It is through understanding of PIPs and their values in particular that we are able to conduct an informed risk-benefit analysis so as to effectively trade Forex.

In the next article, i will look briefly on Pipettes which are fractional Pips (Pipettes in Forex Trading).

OJ Mwale – Sani Global
Further knowledge & resources: -
https://tinyurl.com/yayrdp6y
https://tinyurl.com/yc976pny
https://tinyurl.com/ycuc59sj
https://amzn.to/2JuNrYs

Comments

Post a Comment

Popular posts from this blog

Harmonic Patterns

Image
Harmonic Patterns – A Forex Market Trader’s Perspective – Harmonic patterns are formations on forex charts, created by price movements in the market. These patterns assist the trader to: – Analyze the forex market and forecast its price movement with precision therefore Determine potential trend-retracement areas (entry and exist points) with the highest possible accuracy. In other words ; Harmonic patterns use Fibonacci retracement levels to geometrically draw patterns that depict potential trend-reversal zones, thereby assisting the trader to precisely highlight the best trade entry/exit points. Due to their proven accuracy in pin-pointing potential trend-reversal zones in forex market, Harmonic Patterns are key (advanced) tools in the trader’s box. Harmonic Patterns are usually characterized by “M” (Uptrend) and W” (downtrend) shapes and can be categorized into Seven basic patterns: Gartley , Butterfly , Crab , Bat , Shark , Cypher and Deep Crab
Read more

The Butterfly-Harmonic Pattern

Image
The Butterfly-Harmonic Pattern - Forex Trader’s Perspective - As explained in our introduction , Harmonic Patterns use Fibonacci retracement tool, to enable the trader determine turning points (trend reversal zones) with nearest accuracy. All Harmonic Patterns are shaped in a zigzag formation, “M” shape depicting an uptrend and a “W” depicting a downtrend. The Butterfly like all Harmonic patterns, has five points - namely, “XABCD”. As always, the market will provide the “XA” leg – being the impulse leg or move. The trader therefore is expected to identify the remaining “BCD” points. Therefore, using the Fibonacci retracement tool, you can measure and identify “BCD” points based on the following measurement guidelines or Criteria : - Plot the Fibonacci from peak of to the lowest point on the chart, then identify: - 1) Point B: Which should be at around level 78.6, retracement of leg “XA”. 2) Point C: Which should be between 38.2 and 88.6, retr
Read more

The Gartley - Harmonic Pattern

Image
Harmonic Pattern – The Gartley Harmonic Patterns enable traders to determine turning points with precision and high accuracy. In our introduction to Harmonic Patterns, we indicated that; all Harmonic patterns have five points – namely, “XABCD”. Of the five points, the market always provides “XA” which is the impulse leg/move. Therefore the trader is required to identify the remaining points - “BCD”. The Gartley pattern is the most commonly used harmonic pattern, and it was founded by an American ‘Harold McKinley Hartley’ (H.M. Hartley) in 1932.  Like all Harmonic patterns, The Gartley is based on the Fibonacci retracement numbers, and it is used to help traders forecast/identify turning points on the market-trend chart. It is therefore a good indicator on when to enter or exit trades. Using the Fibonacci tool, the Gartley pattern identifies BCD points by using the following measurement Criteria : - >Point ‘B’ is 61.8 retracement of leg “XA”. >Point
Read more