Hi, Chris
Fluctuating exchange rates can affect the pip-values in your trades, altering (slightly) your trades’ profits or losses.
Fluctuating pip-values are often referred to as floating pip-values, and they are accounted for automatically, in real time, by your trading platform.
Traders generally ignore the effect of floating pip-values on their bottom line profit or loss.
[B]It wouldn’t be worth your time and effort to try to avoid these floating pip-values by setting up specific accounts, denominated in specific currencies, for trading specific pairs.[/B]
Here are the basics regarding pip-values, and the profits or losses posted to your account in GBP.
When you close a trade, a profit or loss is posted to your account, determined by two factors:
(1) how many pips did you earn or lose, and
(2) how much is 1 pip worth in the currency of your account.
This second factor, the pip-value in GBP, will typically fluctuate during the time that your trade is open.
In any trade, the value of 1 pip is determined by the exchange rate between the [B]account currency[/B] and the [B]cross-currency[/B] of the pair traded. In your case, when the account currency and the cross-currency are both GBP, there is no “exchange rate”, and the pip-value is fixed at 10 GBP/pip for standard lots, 1 GBP/pip for mini-lots, etc.
For a GBP-denominated account, every pair that you might trade has a floating pip-value, EXCEPT the EUR/GBP. This is because the EUR/GBP is the only pair traded in the forex market which has the GBP as its cross-currency. In every other GBP-pair, the GBP is the base currency.
If you trade the USD/JPY, the price of the [B]GBP/JPY[/B] (at the time your trade is closed) will determine the pip-value which factors into your profit or loss.
If you trade the EUR/USD, the price of the [B]GBP/USD[/B] (at the time your trade is closed) will determine the pip-value which factors into your profit or loss. And, so forth.
You can calculate floating pip-values, if you’re inclined to doing so. Or you can rely on your trading platform to furnish these values. When planning a trade, it’s important to know the pip-value that pertains to that trade, in order to know and control your monetary risk.
If you crunch some representative numbers, you will see that the overall effect on your bottom line profit or loss, due to floating pip-values, is typically in the range of +/- 1% for short-term trades.
Note that floating pip-values cannot turn a profit into a loss. At most, they merely increase or decrease (slightly) the size of your profit (or the size of your loss).