Hi I’m new here. going through the course at the preschool level. just had a little confusion regarding the topic “What is a pip”. The calculations got me in confusion. Here’s the part where I can’t seem to get it right: (Red font are my comments)
"As each currency has its own relative value, it’s necessary to calculate the value of a pip for that particular currency pair. In the following example, we will use a quote with 4 decimal places. For the purpose of better explaining the calculations, exchange rates will be expressed as a ratio (i.e., EUR/USD at 1.2500 will be written as “1 EUR/ 1.2500 USD”)
*Clearly understand this part. The value of 1 EUR is 1.2500 USD
Example exchange rate ratio: USD/CAD = 1.0200. To be read as 1 USD to 1.0200 CAD (or 1 USD/1.0200 CAD)
*1 USD is 1.0200 CAD right?
(The value change in counter currency) times the exchange rate ratio = pip value (in terms of the base currency)
[.0001 CAD] x [1 USD/1.0200 CAD]
Or Simply
[(.0001 CAD) / (1.0200 CAD)] x 1 USD = 0.00009804 USD per unit traded
*Now I just can’t seem to understand how it became 0.00009804 as the found pip value?
Using this example, if we traded 10,000 units of USD/CAD, then a one pip change to the exchange rate would be approximately a 0.98 USD change in the position value (10,000 units x 0.0000984 USD/unit). (We use “approximately” because as the exchange rate changes, so does the value of each pip move)"
*Where exactly did 0.98 come from? I did calculation of the formula but it doesn’t match the said value.
Anyone here who can help me get through here would be a great help. This part is so confusing to me.
Thank you so much