Pips in Forex D:

Beginner Questions
1

Hey Ya’ll,

I’m currently learning in the school of pipology and I am completely stuck trying to understand pip values and calculating profit and loss. The example they give (preschool: what is a pip in forex) is

[B]Example exchange rate ratio: USD/CAD = 1.0200. To be read as 1 USD to 1.0200 CAD (or 1 USD/1.0200 CAD)

(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][/B]

Or Simply

[B][(.0001 CAD) / (1.0200 CAD)] x 1 USD = 0.00009804 USD per unit traded[/B]

I’ve highlighted in red the area I don’t get. What does that value come from?

2

Hi.
I wouldnt worry too much, theres a calculator in the ‘Tools’ section so you dont have to have a Maths degree to work it out

3

Hey Katie,

Lets put it simple.

A pip value for one lot of EUR/USD is 10$
A pip value for one lot of AUD/NZD is 10 NZD
Its because 1 lot (100 000)/0.0001=10 of quote currency.
To know pip value for 0.01 lot you just need to divide 10 by 100 and you get the value in QUOTE currency.
To get value in base currency just divide value in quote currency by exchange rate.

BUT
A pip Value for one lot of USD/JPY is 1000 YEN
Its because USD/JPY rate is counted in hundred for example 120.20. So 1 lot (100 000)/0.01=1000

I use 5 Decimals chart on my Hotforex platform and for tight HFT scalping I can divide pip value by 0.00001 instead of 0.0001. If you also use 5 digits in your platform then you can use this rule too.
Good luck.

Hope it helps