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If you are interested in Forex and read analytical materials, you have probably come across the mention of the term point or pip. This is because pip is a very common term in Forex trading. But what are pips and pips in Forex?
In this article we will answer the question of what a Forex pip is and how this concept is used in. So, to know what a pip is in Forex, just read this article!
What is a pip in Forex
A pip is the minimum change in price movement. Simply put, it is a standard unit for measuring how much an exchange rate has changed in value.
How much is 1 pip worth in Forex?
Many traders ask the following question: how much is 1 pip and how to calculate it correctly? For most currency pairs, one pip is a move to the fourth decimal place. The most notable exceptions are the Japanese Yen related FX pairs. For pairs that use JPY, one pip is a move to the second decimal place.
The following table shows the Forex values for some common currency pairs to give you an idea of what a pip is worth in Forex:
|
Forex pair |
One pip |
approximate price |
Lot size |
Forex pip value n (1 lot) |
By increasing your position size by one pip, you will be able to answer the question of how much a pip is worth. Let's say you want to trade EUR/USD and you decide to buy one lot. One lot costs 100,000 euros. One pip - 0.0001 per . So the value of one pip for one lot is 100,000 x 0.0001 = $10.
What is the value of a pip in Forex - example on the USD/JPY pair
Let's say you sell two lots of USD/JPY at a price of 113.607. One USD/JPY lot is equal to 100,000 US dollars. Therefore you sell 2 x 100,000 US dollars = 200,000 US dollars to buy 2 x 100,000 x 113.607 = 22,721,400 Japanese yen.
The price is moving against you, and you decide to cut your losses. You closed at 114.107. One pip for USD/JPY is a move to the second decimal place. The price moved against you by 0.50, which is 50 pips.
You closed your position by buying 2 lots of USD/JPY at 114.107. To redeem $200,000 at this rate, you need 2 x 100,000 x 114.107 = 22,821,400 Japanese yen.
This is 100,000 yen more than your original sale of dollars gave you, so you have a shortfall of 100,000 yen.
Losing 100,000 yen in a 50 pip move means that for every pip you lost 100,000/50 = 2,000 yen. Since you sold 2 lots, this pip value is 1000 yen per lot.
If your account was funded in a currency other than , it will affect the pip value. You can use our to easily determine pip values.
Some say that the term "pips" originally meant " Percentage-In-Point"Percentage Point", but this may be a case of false etymology. Others argue that it means Price Interest Point.
What is a Forex point after all? Whatever the origins of the term, pips allow currency traders to talk about small changes in exchange rates. This is similar to how its cousin, the basis point (or bip), makes it easier to negotiate small changes in interest rates. It is much easier to say that the cable has risen, for example, by 55 points, than to say that it has risen by 0.0055.
Let's look at how FX prices appear in , to further illustrate what a pip is in Forex.
Forex pips - prices in MT4
The image below shows the order screen for GBP/USD in:
Source: MetaTrader 5 platform, prices from Admiral Markets, GBP/USD order, 05/07/2019
The quote shown in the image is 1.31190 / 1.31208. We can see that the digits of the last decimal place are smaller than the other numbers. This shows that these are fractional pips. The difference between the bid price and the offer price is 1.8 pips. If you instantly bought and sold at this price, the contract value would be 1.8.
If you look at the screenshot below of the other order window, you will see that I have selected " Modify Order" as type:
Source: MetaTrader 5 platform, prices from Admiral Markets, GBP/USD order, 05/07/2019
Please note that in part of the window Modify Order There are drop-down menus that allow you to select levels, which are a certain number of points. Therefore, there is an important difference between points and pips. The dots in these drop-down lists refer to the fifth decimal place, in other words, fractional pips that are one-tenth of a pip. If you select 50 pips here, you will be selecting an order level that is only 5 pips.
A really good way to become familiar with pips in Forex prices is through the MetaTrader platform. This allows you to view and trade at market prices, but with zero risk because you only use virtual funds when you use .
CFD pips
If you are interested in , you may be wondering if there is such a thing as a pip in stock trading. Indeed, there is no use of pips when it comes to trading shares, since there are already ready-made terms for exchanging price changes: namely, pence and cents.
For example, the image below shows an order for IBM:
Spread – what is it in Forex trading? To begin with, a spread is synonymous with the concept of “difference” (it is not for nothing that some margarines are called a spread, meaning their difference from classic butter). In exchange trading conditions, in particular, the spread on Forex is the difference between the minimum supply price of an asset and the maximum price at which traders agree to purchase it. However, the terminology itself requires clarification, not to mention the fact that it is necessary to clarify the mechanics, that is, how exactly spread trading is carried out.
Spread: what is it in Forex
The financial market is called organized not simply because there are specialized traders on it who artificially maintain its 100% liquidity, continuously maintaining open positions on selected assets. It is also organized, thanks to the presence of a mechanism for submitting and recording applications for transactions, for transactions.
Every buyer wants to buy cheaper, and every seller wants to sell more expensive. At the price level at which their desires converge, the transaction is carried out. Modern interfaces of trading platforms illustrate this in the form of a “glass”, where buyers’ orders are indicated at the bottom (or left), and sellers’ orders are indicated at the top (or right). Transactions take place at the point where these prices “contact”.
Of course, the prices do not have to “touch” at all. All market participants have their own conditions, restrictions and wishes: some need to sell urgently and at any price, while others can wait. As a result, there may be some cost difference between the highest price quoted by any buyer (BID price) and the lowest selling price (ASK price). This is the spread.
It is important to understand that the prices that form the spread are the most relevant on the market - they are the prices at which the largest number of transactions are concluded.
Sometimes they say that a spread is the price difference that a broker (providing participants with access to trading) or a trading organizer (that is, the exchange platform itself) “puts in his pocket.” This is wrong! Nobody puts anything anywhere here: the site charges participants a percentage of the transaction - it doesn’t care whether you buy or sell. The broker does the same. The spread has nothing to do with their income at all.
So, what is a spread in Forex? Specifically in Forex, the spread depends on the understanding of the level of adequacy of the currency price among those who want to sell and buy it. And until the buyer and seller agree, there will be no deal. But in fact, it represents the price difference between the maximum purchase offer and the minimum sale price of a currency pair.
Questions of the mechanics of exchange transactions, as the basis for spread trading
There are 2 main ways to enter into transactions on the organized market:
Place an order and wait, like a fisherman, until the counterparty “bites” on it. If you are a buyer, then the seller must “take the bait,” that is, agree to a deal with you on the terms you propose. And vice versa.
“Collect according to current ones.” This means that you yourself accept the orders of your counterparties, that is, you agree to the terms of the transaction offered to you.
Numerous types of orders: pending, limit, etc. - are just derivatives of these two.
The bustle of people on stock exchanges has become a thing of history. Nowadays, no one is jostling there or making finger signals to each other (signs that, however, have legal consequences), as well as to their back office on the periphery. Trading has gone online and orders are accepted there with a simple click of a mouse button.
Accordingly, let’s assume that you decide to buy shares of company Q. You either place an order at the price at which you would like to buy them, or simply “select” other people’s offers for sale if the sellers’ prices suit you (just click on them with the mouse ). Obviously, the maximum number of such clicks falls on the prices that form the spread, that is, on the most relevant ones.
The spread on Forex (and in general, on any exchange, on any asset) tends to fluctuate. This means that these current prices, which form the spread, change frequently and quickly, and in both directions.
By the way, the more liquid and volume the market is, the smaller the spread and the higher the dynamics of its change. It turns out that the risks of paired operations of buying and selling an asset within the price spread are minimal (since the asset “walks” back and forth within the spread scale all the time).
So why not make spread trading on Forex (as one of the largest markets in the world) a professional activity? Yes, the price difference will presumably be small, but transactions can be concluded literally hundreds of times a day (modern software robots help with this) - this is a source of guaranteed income... Almost.
How to trade spread
And now the mechanics. Everything is extremely simple: we buy cheaper and sell more expensive. In an organized market and trading CFD options, these actions can be performed in any order. The main thing is that the rule is observed - the selling price must be higher than the purchase price.
Spread: what is it in Forex terms? A certain price interval that “walks” up/down hundreds of times. If you buy a currency at the lowest possible price, “collecting” current orders, and immediately placing a sell order at the currently valid price, as close as possible to the purchase price, then there is a high probability that the price will move up and your sell order will be executed with a profit for you.
Why do you need to choose the spread price, and not a higher one, for example? In order for the transaction to have a greater chance of closing: after all, the smaller the movement you count on, the higher the likelihood of this event occurring (this is obvious).
It’s worth repeating: spread trading is not done based on the maximum price movement of an asset, but based on the largest number of transactions performed. In other words, we make money not on price growth, but on the volume of transactions... Well, and on price growth, if possible, too.
Conclusion
Having analyzed the question of spread, what is it in Forex, we can draw some conclusions. Trading on a spread differs from regular (quieter) exchange trading in its greater dynamism - a monstrous number of “penny” transactions are concluded here.
“Penny” is dictated by the desire to reduce the likelihood of prices going in the wrong direction. But no strategy (including this one) can guarantee this. So a spread trader can retrain from a “predatory scalper” to a “strategic investor” at any moment. Although, no, perhaps just a second.
Investment Secrets - keep your finger on the pulse of investments!
It seemed such a simple question, “What is a Forex point?” sometimes causes a lot of misunderstandings and additional questions, because each currency pair has its own point value, and other factors also influence its size.
Point (point) forex– sometimes also called a pip, this is the last digit in the quote of a currency pair, which characterizes the minimum possible change in the exchange rate in relation to the currencies in the currency pair.
If you pay attention to Forex quotes, you will notice that each of the instruments has the same number of decimal places, but this factor has absolutely no meaning, one point will still be equal to the last digit in the entry.
For example.
AUDCAD – 1.0596 a price increase of 1 point in this case will lead to a quote of 1.0597
CADJPY – 92.47 in this case, the change to will already affect the second digit after the decimal point.
In addition, the quote for a currency pair in some cases may have three or five decimal places.
Forex point value.
When trading, you should take into account that although all transactions have standard volumes, which are measured in lots, the cost of one Forex point for each currency pair will still be different.
Therefore, when making calculations, it is imperative to take into account which currencies form a given currency pair, and if the base currency is always used to measure trading volumes, then the cost of one point will be calculated depending on the quoted one. The more significant a given currency is, the greater the value of our indicator.
In addition, we should not forget about the number of characters in the quote; this factor also directly affects the calculations.
The cost of a point also directly depends on the volumes performed; the larger the volume of the transaction, the greater this indicator.
The simplest example is the calculation for the EURUSD pair; for convenience, let’s take the volume of transactions as 1 lot or 100,000 units of the base currency.
0.0001x100,000 = 10 US dollars
Let's change the currency pair to USDJPY
0.01x100,000 = 1000 Japanese yen or 10.55 US dollars
Let's try to make calculations using expensive currencies EURGBP
0.0001x100,000 = 10 pounds sterling or about 15.15 US dollars.
As you can see, the cost of a Forex point is influenced by several indicators - the quoted currency, the number of digits in the quote and the number
Good afternoon, dear readers and visitors of our site! In this review, we will look at a very simple topic, which is mainly aimed at novice traders. However, I often notice that even many experienced traders are confused about what points and pips are.
Today I just wanted to tell you and explain what, how, why and why. This is the base, the real base, and you must understand that not a single house will stand for a long time without a solid and powerful foundation, just as you won’t be able to trade well if you don’t have a suitable base for this. If you are an experienced trader who understands all the intricacies, then this article is probably not for you.
Within the framework of this article, I want to tell novice traders about these basic things, which, unfortunately, raise many questions in practice. So, let's go!
Let's start studying the problem
You may think that this is all funny, how can you get confused in such an elementary concept, but, in fact, there are often cases when beginners do not understand this term at all. Indeed, when a person just begins to master the financial markets, he simply has to deal with a huge amount of different information. I understand that this is very tedious and not always interesting, however, this is a very important aspect that cannot be ignored. , by the way, possess a significant amount of knowledge.
At the beginning of his journey in the financial market, a beginner has to master a lot of different concepts. I would like this beginner's path to be as easy as possible. It is for this purpose that this page has been compiled.
If we take the economy as a whole, then the point indicates the minimum step in price changes in one direction or another. Roughly speaking, a point can be called a certain conventional unit of measurement. Speaking specifically about the market, then point indicates the minimum step of price change up or down.
In English nomenclature, the concept of point or pip is often found. Generally speaking, these three concepts are very similar to each other, therefore, do not be surprised or alarmed if you come across similar names in different articles. They all mean the same thing. And with an understanding of the meaning of requotes, you will not have any grudges against your broker. So, …
Closer to the point and revelation about the stock market
For major currency pairs, one pip will be 0.0001. In turn, if we talk about the Japanese currency, then one point will be 0.01. Why such a difference? Even compare the dollar with the Japanese currency, you will find that the latter costs an order of magnitude cheaper than the dollar.
In this paragraph, a curious mind will answer many questions for itself. Just read every line!
At first glance, you won’t be able to figure it out without a hundred grams, and it’s hard to get completely confused. However, not everything is as complicated as you might think. Let's say you opened the terminal in the morning and found that the euro dollar costs 1.3005. But in the evening we see that the price of the euro/dollar has become equal to 1.3085. In this case, we can say that during the day the euro and dollar grew by 80 points. Let's take the dollar yen as an example. In the morning the pair was trading within 85.70, and in the evening it began to equal 85.00. In this case, they will say that the price has dropped by 70 points.
Of course, in the Forex market you need to look based on what quotes you have, but I will tell you about this a little later. Although, speaking directly globally, in the Forex market in the context of this issue you don’t have to worry too much at all. But as for the stock markets, then everything is very important!
On the stock exchange, one pip is the minimum price change, and it is always equal to 1 cent. But a point on the stock exchange is 1 dollar, that is, 100 cents. Accordingly, you don’t need to be smart and you don’t need to do complex mathematical calculations to understand that 1 pip on the stock exchange is equal to 100 pips.
Look
To be honest, I have no particular desire to fill your head with various mathematical formulas. I am more than sure that this will not be interesting to anyone, to be honest, and for me it’s a chore. You and I are not some big financiers, we don’t need to get to the bottom of the details. It’s just worth clearly understanding that within Forex the concepts of points and pips are not particularly important, but on the stock exchange it’s worth remembering that 1 point is equal to 100 pips. That is, for example, if on the stock exchange the issuer’s price changed by 2 points, then in pips it changed by 200. As you can see, everything is simple here.
About the application of the concept in Forex and conclusions
But there is one small point in the Forex market that currently allows us to separate the concept of point and pip. There are four-digit quotes, so there is no need to consider the concept of point and pip! What kind of quotes are these? They just have 4 digits after the decimal point. For example, 1.2000. As for five-digit quotes, the situation is somewhat different, and this is where you can distinguish a point from a pip.
Example of a five-digit quote: 1.23500. The very last fifth number can be called a pip, since this is the minimum value of the price change. For example, the price became 1.23505, respectively, the price changed by 5 pips. The fourth number can be called points. For example, it was 1.23500, but became 1.23550. In this case, we can say that the value of the asset has changed by 5 points.
Just remember the important detail that in five-digit quotes, the last fifth number can be roughly equated to a pip. As you can see, there is nothing complicated here. Again, personally, to be honest, I think there is no point in bothering with these concepts. But if I say that you shouldn’t bother, I don’t mean that it’s better to ignore it. No, this is a base that must be taken into account.
As you can see, in principle, there is nothing complicated here. I don’t see the point in giving out any complex calculation formulas, because it will be, at a minimum, not interesting to you, and at most simply boring. In any case, if you are going to trade on the stock exchange, then you will need to pay more attention to this issue. I hope I was able to explain and explain to you at least a little in a simple form the conventional differences between a pip and a point. Now, I will say goodbye to you, friends. See you again!
In trading on the financial market, the time range plays an important role. This is especially important when a trader is calculating the period for a future transaction. The time factor also matters when choosing trading strategies and techniques, and it is especially important for short-term positions. If a speculator uses scalping in his work, then not just every minute, but even every second will be precious to him.
The time interval where transactions occur has the form of a scale with divisions, which is located vertically on the right side of the chart. The pip is the most important indicator in time calculations. What is it, what does it mean, how is it calculated? This is what this article will discuss.
What is a pip in trading?
Among the Forex terminology there is such a thing as a pip, or point. Every beginner, when studying theory, is always faced with specialized terms that he needs to know. Otherwise, he simply will not understand what we are talking about.
A pip is the smallest unit of measurement of price movement in the financial market. There cannot be less than one division point. Each such step of market movement is recorded on the chart on a vertical scale.
All earnings or losses of the trader are indicated in points. Very often you can hear from professionals that they closed a deal with a profit of a certain number of points. In other words, this means that they correctly calculated the movement of market quotes and were able to make money on price changes.
Example of calculating the value of a point
A pip is always involved in all calculations that are required to open and close a position. Depending on the trading conditions of the brokerage companies, four-digit and five-digit quotes may be presented. The second option is the most accurate, since it provides information about changes in the market price to one ten-thousandth, that is, up to 0.0001. For example, you can consider both quote options:
- In a four-digit quotation, the price change will be 0.0001.
- In five-digit - 0.00001.
Consequently, a change in one point according to the first quotation option will correspond to a tenfold increase in the 2nd option. Thus, it can be understood that 1 pip of a four-digit quote will be equal to 10 pips of a five-digit quote.
Application of pips in trading on the financial market
In trading on the modern financial market, a trader does not need to independently calculate the value of a pip. At first, beginners are often faced with the question of calculating pip values: how much will it be if they are converted into cash equivalent, how to calculate the cost of a lot in points, at what distance from an open position to place a protective and profit-fixing order, and more.
In trading, there are two options for calculating the value of a pip: for direct and reverse quotes.
An example calculation for the direct quotation option is given below:
- The trading asset for Forex USD/CHF has a current value of 1.3000. The main currency in the pair is the American dollar, the quoted currency is the franc, which means that calculations will take place in francs.
- But the trader wants to get the value in dollars, so he needs to do the calculations for a price change of 0.0001. If it goes up one point, he will earn 1/1.3000=$0.77. And, conversely, if the exchange rate decreases by one point, he will receive a loss of the same amount.
Calculations for reverse quotation:
- The trading asset EUR/USD has an exchange rate of 1.6000, where the euro is the main currency and the dollar is the quoted currency.
- If the quotes change by 1 pip, the trader will either earn or receive a loss of $1, depending on the correctness of the chosen direction.
Automated programs
The pip is not just an ordinary indicator for calculations, but an important element in trading. To make it easier for traders to perform various mathematical calculations, specialists have developed special automated programs.
Many technical indicators have in their algorithms not only indicators for determining market changes, such as trend strength, trend direction, market volatility and much more, but also mathematical calculations for certain currency pairs.
All such calculations take into account the time interval in which the trader's transactions are made and the type of quote (direct or feedback, five-digit or four-digit value).
Most often, traders use special calculators to calculate a pip. Using a filter, they set the name of the currency pair, the type of quote, and as a result get a finished result.
In addition, on many trading platforms such calculations are performed automatically. For example, on MetaTrader you can choose the function of calculating in points or the selected currency, and then the trader does not have to perform mathematical operations on his own.
Technical tools for pipsing
Based on minimal changes in market quotes, professionals have developed special trading strategies. They fall under the category of scalping or pipsing. Short-term trades are always opened on small time frames and are completed within a short time frame.
Typically, in one trading day, a trader opens a large number of transactions, each of which has a small number of points earned. Due to the large number of completed transactions, scalping techniques allow traders to earn quite good money. Among the famous pips operators, we can highlight the famous trading expert Larry Williams, who was able to achieve very good results and increase his deposit 100 times in one year.
To work with short-term transactions, traders use a special tool - the pips indicator.
You can also use:
- MA indicator.
- ZoneTrade_v2.3.
- "AMA STL Color".
- "Bands Fibo True" and other types of indicators.
Conclusion
To trade profitably on the Forex currency market, you need to undergo basic training and be able to predict changes in market quotes. Beginners should pay special attention to the laws of the financial market and money management, where the point or pip is the basic unit of calculation for all speculative operations.
After studying the terminology and chosen trading strategy, you need to consolidate your skills on the free version of the demo account. As soon as a beginner receives stable positive results on the demo, you can immediately move on to trading.