I’m sure this has already been said, but after doing some quick checks on my demo I thought I should post this.
When talking about a pip value traders generally round it down (eg $10 for standard, $1 for 10k, $0.10 for 1k etc). Most of the examples I have seen while learning, including the fantastic school of pipsology [B](I can’t recommend this highly enough!)[/B], use these examples as they are easier to understand. However when calculating a stop loss the FULL pip value is very important.
For example if I set a stop loss of 50 pips with only 1000 units while thinking it’s $0.10 per pip, I am expecting the most I will lose is $5.00. A quick check on the Babypips pip value calculator (thanks guys!), shows that it’s really $0.1075 per pip. [B]Meaning I would actually lose $5.375![/B] :19:
What if it had been a standard lot… If I had just gone with the $10 pip value idea, I would have assumed that the most I could lose was $500. Again checking the Babypips calculator, I can see its really $10.7515 per pip. That would mean I would actually lose $537.575. [B]That’s $37.575 more than I expected to lose![/B] :eek:
PS. If these trades were based on a 1% (or 2%) risk (of account), the difference would be 0.075% (0.15% for 2% risk) of your account balance! That may not seem that much, but if you had 10 trades open at once that would be [B] 0.75% (1.5% for 2% risk) of your account balance. That means both are the equivalent to 3/4 of the percentage risked for another trade![/B] :34:
One more thing that I suppose you missed SJK, "The pip value in your accounts’ currency."
Eg, for a USD account, the pip value for a standard lot (EUR/USD) is 12.5 and not 10.
This is a rarely discussed topic but you should consider getting more infor about the same.
Yeah, GRIX is right, once your numbers start getting bigger, you will find it problematic to round.
Funds around the world spend hundrerds of millions every year, for the latest technology that will give them nano-second precision… Gives you an idea that you too should be as precise as possible.
There is a lot more info I considered adding to this post, but was trying to keep it reasonably simple. Thank you GRIX for adding about the account currency and larger differences. This shows even more clearly the importance of checking the full pip value.