Newbie Question! Need help understanding USD/JPY vs other Pairs

Beginner Questions
1

Hello All

I am new to forex and I am trying to understand things well before I trade with live account.I don’t seem to get why profit/losses with USD/JPY pair differ from other pairs such as EUR/USD.

For example, when testing strategies in Demo Account. A buy of 2500 Size (.25 lots) gives me a a higher profit/loss ~between $50-$500 for USD/JPY pair. But, when I test the strategy against EUR/USD with same position size -2500, I get a lower profit loss range ($5-$50). Two Questions:

Q1.If profit/loss depends on pips then why so much difference in $ amount ? Is it that USD/JPY pair is much more volatile and there is a greater opportunity for profits or risk for loss?

Q2. Does entering a Position(long) of 2500 USD/JPY mean I need to have greater than $2500 in my account? Conversely, does entering a Short position with a size 2500 means selling $2500 USD to buy JPY?

To put it in mathematical terms , here is how I am calculating profit when buying

Buying- 0.25 lots @114.50
Enter Long Calculation : 2500 X 114.50 = 286250 YEN

Selling -.25 Lots @114.70
Exit Long Calculation : 2500 X 114.70 = 286750 YEN

Difference =500 YEN . Applying current conversion rate results in 500/114.70 = $1 Profit @ 20 Pips

In the demo account however, I get a much higher profit amount ~$150. What am I not getting???

Thank you for your help!!

2

I can’t comment on how your demo platform is functioning (or malfunctioning). I can’t comment on the trading strategy you are attempting to test. And I can’t comment on how you are handling the inputs into your demo platform. You haven’t given details regarding these factors.

I [I]can[/I] tell you how to determine accurately the dollar-profit (or loss) from any size pip-profit (or loss), on any currency pair, given any exit price.

There is a reliable tool for determining [I]the pip-value (the dollar-value of one pip)[/I] in any trade, right here on this website — it’s called Pip-Value Calculator. Once you know this pip-value, it’s a simple multiplication to determine the dollar-value of any price move measured in pips.

Example (using the metrics from your post) —

If the pip-value for your [B]2,500-unit USD/JPY position[/B] is determined by the Calculator to be [B]$0.218 per pip,[/B] and your position is closed with a [B]profit of 20 pips,[/B] then your [B]dollar-profit is $4.36[/B] (that is, $0.218 x 20 = $4.36).

Here’s how the Calculator looks with the metrics of your trade filled in, and the result calculated —

You can use the Calculator to determine the pip-value for your [B]2,500 unit EUR/USD position,[/B] [I]but you don’t need to,[/I] because you should know that, in a USD-denominated account, one pip in a EUR/USD position is always worth $10 per lot, $1 per mini-lot, $0.10 per micro-lot, and $0.0001 per unit of currency. Knowing those metrics, you can simply multiply $0.0001 per unit x 2,500 units to get your pip-value: [B]$0.25 per pip.[/B] Then, $0.25 per pip x [B]20-pip profit[/B] = [B]$5.00 profit[/B] on your EUR/USD trade.

You can use these results to determine where the errors are occuring in your demo platform (and/or in your manual inputs into the demo platform).

As you can see, there is not a huge difference between the dollar-value of a 20-pip profit in USD/JPY compared to EUR/USD. In fact, by playing around with the Pip-Value Calculator, you can prove to yourself that a 20-pip profit in any major currency pair (or major cross) produces a dollar-profit in the same general range as those calculated above. There are no instances in which these dollar-profit calculations will vary by a factor of 10, as you described in your post.

Here’s a LINK to the Pip-Value Calculator on this site.

I hope this is helpful.

Welcome to this forum, by the way.

.

3

Yes in my opinion USD/JPY is one of the most volatile majors because of jpy volatility. You would have to be pretty careful with the volumes traded there…

4

Hello

Thank you for explaining. However, my question was not answered. I know I am not able to explain it in the best way. Here is a screen shot of my results from two different pairs.

My question is, why is there a greater loss in JPY pair for each pip when the lot size and the pip loss is the same? Conversely, profit is greater in JPY than GBP pair.

5

The pip value is not the same, use the pip value calculator Clint gave a link to

6

Hello,

I did go to the link and pip value comes out to ~20 cents for 2500 lot size for both .



SO if I understand this correct a move from 117.66 to 117.76 is 10 pips and not 1 pip for JPY. Meaning each JPY PIP is of atleast 10 pips?

I apologize for these stupid questions :frowning:

7

In Jpy pairs you will see there is two digits fewer after the decimal point in the quoted price, I.e. usdjpy currently shows as 115.05, while eurusd shows as 1.0674. The last digit in each case is one pip (please note your broker will probably show another digit, a pipette, which is one tenth of a pip)
So, in your example above you are half right, a move from 117.66 tp 117.76 is 10 pips in a Jpy pair. But each JPY pip is not 10 pips, it’s still just 1 pip.

Btw, spend some time at the school on here, it’s a great resource and totally free

8

Hello Carlos,

thank you for this. The gears in my head are starting to turn finally. One more question.

If you look at my back test for JPY , the first row Entry exit is -117.66 to 1177.659 . This comes out to a difference of 7 pipettes. For ease, let’s round it to 1 pip. From pip value tool, 1 pip= 20 cents for JPY. Why is my back test showing $2.50 loss?

Looking at GBP pair , a move from 0.85085 to 0.85089 is ~1 pip. and the loss is 20 cents, which my back test shows correctly.

Thank you for all your help!!

9

Theres a number of things you don’t understand here, strongly suggest you work your way thru the school taking the quizzes as answering individual questions is going to lead to further questions rather than helping.
One of the first things you’ll learn is that when you trade you aren’t buying any currency, you’re effectively betting that the first currency quoted in the pair will either appreciate in value relative to the other (a long trade) or depreciate (a short trade).

10

In a 114.90 quote where is the 1 pip amount located/ where does it begin ? At the 0 (zero) at
the end ? I used to know, Just want to verify. Thanks.

11

Yes - [I][U]for JPY pairs[/U][/I] the pip is the [I][U]second[/U][/I] decimal place. So 114.89 is a pip lower than 114.90, and 114.91 is a pip higher than 114.90, etc.

12

You have to love that volatility. How come everyone doesn’t trade this all the time ? I think I have done maybe 6-7 trades but I’ll trade more often now. Thought I’d verify before rather than during trading. Thank you.