I have read across a few times like �We made 100 pips!�. To a newbie it is not very intuitive. I ran through following analysis to understand the significant of.

The pip is how we measure our profit or loss.

A pip is the last decimal place of a quotation.

1 pip = .0001 for the most of pairs. 1 pip USDJPY = .01

pip_value = pip /exchange_rate

use USD/JPY as example.

exchange_rate = 115.20

pip_value = .01/115.20 = .0000868

pips x (pip_value) x lot_size = profit/loss

Standard Size Lot

1 lot = $100,000

Mini lot size $10,000

Consider the standard size lot $100,000

What is the value per pip for the standard size lot?

(.01/115.20)x$100,000 = $8.68 per pip

if the exchange moves 50 pips up/down, the profit/loss for a lot will be $50 x 8.68 = $434.02

For an 1% margin account (1:100), the profit/loss = 43.4%

If the exchange moved 100 pips, the profit/loss would be $100x8.68 = $868.05, a 86.8%

According the pipsbaby the most of the successful FOREX traders use 1:5 or less leverages.

Do the math for moving 50 pips case:

for 1:5, to control $100,000 would need $20,000. the profit/loss = 2.1%

for 1:3, to control $100,000 would need $33,333, the profit/loss = 1.3%

For the case, moving 100 pips

for 1:5, the profit/loss=4.2%

for 1:3, the profit/loss=2.6%

A few observations:

- To trade FOREX requires a sizable account for staying in the game. For 1:5, a standard size lot needs an over $20,000 account And for 1:3 an over $33,333 account.
- on the profit, since you need the amount of �equity� greater than �used margin� to avoid the margin call, the profit is less than shown which not even having the spread counted.
- pip-value = pip /exchange-rate, the larger exchange-rate and the less pip-value, therefore the less profit/loss becomes. This may be included as one of the factors as choosing pairs to trade.
- moving 100 pips is equivalent about .85% change in USDJPY, which is less than 1 %! In 1:5 leverage, it could result 4.2% profit/loss. That�s why 90% do not make it because of lack of understanding how the leverage works.

Please comment.

Sean