PIP for Quote Currency

Hi There

Can anyone explain this form baby pips school

EUR/USD equals 1.2538. In this instance, a single pip equals the smallest change in the fourth decimal place – that is, 0.0001. [B] Therefore, if the quote currency in any pair is USD, then one pip always equal 1/100 of a cent. [/B]

Regards
Shahzad

Hello, Shahzad

In the example, the price of the EUR/USD pair is quoted as 1.2538. This means: 1 EUR = 1.2538 USD. Or, to use common symbols, €1 = $1.2538.

In other words, €1 = 1 dollar, 25 cents, and 38/100 of a cent.

The fourth decimal place (8, in this example) represents 8 pips, or 8/100 of a cent.

This pattern is repeated in any currency pair in which the USD is the quote currency (cross currency) — in other words, any pair of the form XXX/USD, where XXX can be any currency other than USD.

[B]So, for pairs of this form, one pip is always 1/100 of a U.S. cent.[/B]

Consequently…

If you are trading one micro-lot (1,000 units) of XXX/USD, one pip will be worth $0.10 (1/100 of a cent x 1,000).

If you are trading one mini-lot (10,000 units) of XXX/USD, one pip will be worth $1.00 (1/100 of a cent x 10,000).

And so forth.

A similar pattern holds for currency pairs having quote currencies other than USD. For example: in the EUR/GBP pair, one pip is 1/100 of a British penny — that is, £0.0001. So, if you are trading 1 micro-lot of this pair, one pip will be worth £0.10. If you are trading one mini-lot of this pair, one pip will be worth £1.00. Etc.

Note that the EUR/GBP is the only currency pair in which the GBP is the quote currency. In every other GBP pair, the GBP is the base currency (because of the established heirarchy of currencies used in defining currency pairs).

Hi Clint

Thanks for the explanation.

Sorry for the late reply as I was busy somewhere else.

Regards
Shahzad