Hi guys.
I am confused about how the pip value is calculated.
Can some one explain me how is it calculated?
Thank you
with the exception of Asian pairs. the pip is the fourth digit after the decimal. for a 100,000 lot a pip is worth $10. For a 10,000 mini lot a pip is worth $1.00 It’s easy, just move the decimal point
A pip is basically a unit of distance and doesn’t have a set value.
Like Talon said, a pip is worth $10 if you are trading 1 standard lot, but it could be worth anything depending on how much you are trading.
You can figure out your value per pip from your lot size…
1 standard lot = $10 per pip.
1 mini lot = $1 per pip.
1 micro lot = $0.10 per pip.
More correctly, the value of a pip for a pair where the USD is the quote currency (second listed) it will be .0001 x the size. Thus, for EUR/USD a pip is worth $10 for a standard lot (100,000 EUR) and $1 for a mini lot (10,000 EUR).
When the USD is the base currency (USD/JPY, etc.), or you’re dealing with crosses, the pip value is variable based on the current exchange rate.
yeah, EUR/GBP is double.
Ok so let me get this straight.
If i start account with 1,000$ and i use leverage of 100:1 and i have buying power of 100,000$. I start buying EUR/USD at 1.5800 and it goes u to 1.5820, here i stop my trade wich means i have earnd 20 pips. So (100,000$ * 0.0020 = 200$). So my pip is worth 200 devided by 20 equals 10$.
Am i right?
If you buy the EU, one standard lot = $10 per pip movement. Lets say you don’t have any spread cost (which are measured in pips). If the EU moves in your favor by 20 pips, you theoretically made $200. However, if you had only $1,000 then you can buy only 1 standard lot. If at any time the trade moved against you, your margin will be called since it cost $1,000 to buy one standard lot at 100:1 ratio.
It sounds like you may be confused as to what your buying power is. Let’s look at this first:
Standard Lot = $100,000
Mini Lot = $10,000
Micro Lot = $1,000
This is true no matter what your leverage is or how much money is in your account. If you purchase a Standard Lot, you are always purchasing $100,000 worth of currency. Likewise, purchase of a Mini Lot will always mean you are purchasing $10,000 worth of currency.
Where leverage comes in is when you make the purchase of the Lot (be it a Standard Lot, Mini Lot, etc.). If you have 100:1 leverage, you are required to put down 1% (or 1/100th) of that lot value from your own money in order to place the trade (For a standard lot 100,000 x .01 = $1,000 margin using your own money). If you had 10:1 leverage, you’d be required to put down more of your own money to place the trade ($100,000 x .10 = $10,000). So, 100:1 is a common leverage used.
Now, your original question was how much is a pip worth. Well, again it depends on the lot size you purchase. For myself, I am trading live and purchase half a mini lot per trade. So, the calculation for the value of a pip for me is:
$10,000 (mini lot) x 0.5 (half that size) = $5000 of currency I am purchasing
$5,000 x .0001 (.0001 IS a pip) = $0.50 per pip value (this value let’s me sleep at night since my trades tend to last at least a couple weeks at a time :D)
Notice that the value of the pip had nothing to do with leverage or the amount in my account. It has to do with how much currency you are purchasing (lot size) multiplied times one pip (which is .0001 for pairs like EUR/USD; for USD based pairs and crosses it is different, but don’t worry about that until you get your head around the rest).
There is a lot more to know and understand, but trading is a blast (when you’re winning anyway!). Make sure you start with the BabyPips School of Pipsology. It is not the be all end all in forex education, but gives you a very good start in basic understanding. Open a demo account and trade until you have a system your are comfortable with before going live. I tried a bazillion methods posted on sites before finally settling on my own system. Make sure your demo account starts with the same amount you are expecting to open an account with.
Anyway, hope that helps somewhat.
This is incorrect. A standard lot for most brokers is 100,000 [I]units[/I] and so on down for minis and micros. Those units are of the base currency. Thus, a standard lot for EUR/USD is 100,000 EUR. At a current rate of about 1.22 that mean the standard lot would have a USD value of $122,000.
It is only the case where the USD is the base currency (e.g. USD/JPY) that a standard lot is $100,000.
Rhodytrader isn’t going to give up until we stop automatically assuming dollars, and he’s right not to! We know what we mean, but it can confuse new traders.
Like Rhody said, a standard lot is 100,000 of whatever currency is listed first in the pair. So if you are trading GBP/JPY a standard lot is 100,000 pounds, for AUD/USD it’s 100,000 Australian dollars, etc…
I never worry about the conversions though. For most money management systems assuming dollars will be close enough… If I want to risk 2% of my account and actually risk 2.5% or 3% because I skipped the conversion it’s no big deal.
Haha, thanks Rhodytrader. You’re absolutely right. Thanks for correcting me.
Damn straight!
The reason I correct is because if someone is going to try to figure it out mathematically, they’re going to get it wrong if they don’t have their units right. Also, the dreaded leverage and margin calculations are impacted, and we know how much fun newbies have with that!
Ok let me try again.
I have 2000$ on my account. I decide to buy one standard lot EUR/USD at 1.6000. Then ERU/USD goes up to 1.6020. That means i have earned 200$ USD.
Without using leverage. Am i right?
Kinda right.
20 pip gain multiplied by $10.00 is $200, yes.
So your math is correct, but the “without using leverage” part isn’t.
You are using leverage for $2000 to be able to buy a standard lot.
You would need <$100,000 to open a position without using leverage.
Masteri here is how it goes… with a $2,000 account size. If it goes up 20 pips depending on what leverage u use is how much u get back. heres an example.
Leverage And Returns
10:1 = $20
20:1 = $40
30:1 = $60
40:1 = $80
50:1 = $100
60:1 = $120
70:1 = $140
80:1 = $160
90:1 = $180
100:1 = $200
Depending on what ur leverage u use is how much u get in return. the higher the leverage the more u get back, or the greater the risk, that u may loose. Use the leverage wisely.
Thanks guys i understand it now, but how much does it costs to open one standard lot position?
Depends masteri… i have these money saving strategy i use… example
heres the differences
gbp/usd $144 - $1 pip
eur/usd $135 - $1 pip
aud/usd $82 - $1 pip
jpy/usd $90.17 - $1.11 pip
cad/usd $100 - $0.94 cents
heres just a few exmples. but theres more but i would deal with them for the simple reason that for the margin costs i get less for a pip value. example
gbp/chf is about $144 in margin but $0.87 a pip. not a good way to make money. hope this helps. every currency is different. use the prices as a bugeting idea and make profit from it. i personally just deal with the aud/usd and the jpy/usd. its cheap and the return in pips is as good.
These figures are all incorrect. Leveraging up a $2000 account 10:1 gets you $20,000. If the EUR/USD rate is 1.60, as in the example) you’d be able to trade about 12 micro contracts. The tick value of a micro contract for EUR/USD is $0.10, so that’s a $1.20 value per pip, meaning 20 pips would be $24.
Secondly, you should be thinking risk, not leverage, when entering a trade. Leverage simply determines how large you can trade based on a given amount of available margin funds.
Your margin requirement will depend on your permissible leverage. If it is 100:1 then you take the [I]value[/I] of the position you want to open and divide that by 100. Notice I said value, not size. Value is the size of the position in our account currency. So in the case of EUR/USD at 1.30, a full standard lot would have a value of $130,000. At 100:1 permissible leverage, that’s $1300 for required margin. Check with your broker for the specifics, though.
First, you need to clarify that the above pip values are based on a mini contract (10,000 units).
Second, it’s USD/JPY and USD/CAD. They don’t trade the other way round.
Third, looking at pip values in comparison to margin requirements is not a good way to judge the trading qualities of a given pair. It’s not like figuring out cost/unit in the grocery store.