Everything revolves around pips if you are a Forex trader. This strange sounding acronym will indeed become the central fulcrum of your life for a few months while you learn your way around the forex industry.
"I made a 130 pip profit on my last trade."
"I am up 24 pips today."
That sounds good but what is a pip exactly?
Pip stands for "percentage in point" and you might sometimes hear people talking about "points" rather than "pips". A pip is the smallest unit of price for any given currency. It is the final decimal point in every currency pair or exchange rate.
For a lot of currencies, the pip is 0.0001. If you were to buy USD/CHF at 1.2475 and then you sold it at 1.2489, you would have made 14 pips.
One exception to this rule is USD/JPY. There are only 2 decimal places in this currency pair, so the pip in this case equals 0.01.
Pips are useful because they are the basis for calculating loss or profit.
Pip Value
How do you know what a pip is worth with lots of different currency pairs to deal with and their prices moving up and down all the time?
It is actually quite simple. If USD is the base currency in your currency pair, divide a pip (normally 0.0001) by the exchange rate. If USD is the quote currency in your currency pair, it is easier still. The pip value is always one pip (so 0.0001 for example).
Let's say the exchange rate for USD/CHF is 1.2489,
0.0001 / 1.2489 = 0.0000800704
That seems like a very small figure but you need to remember that in Forex trading you can leverage small amounts of money to move large currency amounts. You can use leverage to make a big profit from what appears to be a very small number.
Let's look at another example. Your broker lets you trade with a 100:1 leverage. This means that to buy a standard lot of $100,000 it will only cost you $1,000. You can see how trading in larger lots affects your profit and loss by affecting the value of the pip.
If you are trading $1,000 in currency, you can calculate the pip value as follows:
0.0000800704 X 1000 = $0.08 per pip.
The price would need to rise by a lot of pips to make any profit at that rate. The 14 pip profit here only made you $1.12. But if you can use leverage to buy a lot size of $100,000, your profit will increase.
0.0000800704 X 100,000 = $8.01 per pip.
Now you have a profit of $112.14, which is obviously a great improvement! Using forex robot makes this whole process easier to manage visit this site for a review of the forex robots available for forex internet trading demo forex trading
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