URICH2.com

You can earn cashback on every trade

no increased commission or spread, just the original trading cost offered by brokers

Get the best commission rebate rate with us


Brokers News

         Fundamental Concepts             Advanced Concepts             Strategy & Education             Personalise Manual
Understanding the pips in forex trading
Source: | Author:finance-102 | Date2023-03-16 | 253 Views | Share:
In forex trading, a pip (short for "percentage in point" or "price interest point") is the smallest unit of measurement used to indicate changes in the exchange rate of a currency pair. It is usually the fourth decimal place in a currency pair, except for pairs that include the Japanese yen, where the pip is the second decimal place. About it, the forex traders should understand the following things:

In forex trading, a pip (short for "percentage in point" or "price interest point") is the smallest unit of measurement used to indicate changes in the exchange rate of a currency pair. It is usually the fourth decimal place in a currency pair, except for pairs that include the Japanese yen, where the pip is the second decimal place. About it, the forex traders should understand the following things:


  • The statement "Pips (percentage in point) are used to calculate the rates traders in the forex market will pay" is not accurate. Pips are used to indicate the changes in the exchange rate of a currency pair, and they are not directly related to the rates that traders pay.

  • The value of a pip does depend on the lot size being traded, as larger lot sizes will result in a larger pip value. For example, in a standard lot size of 100,000 units, each pip is worth $10 in most currency pairs. However, in a mini lot size of 10,000 units, each pip is worth $1, and in a micro lot size of 1,000 units, each pip is worth $0.10.

  • The currency used to open the account does not necessarily determine the pip value. The pip value is determined by the currency pair being traded and the lot size being used.

  • Brokers do collect on the spread in pips, which is the difference between the bid price (the price at which the buyer is willing to buy) and the ask price (the price at which the seller is willing to sell). The spread is typically measured in pips, and it represents the broker's commission or fee for facilitating the trade. By widening or narrowing the spread, brokers can affect their profitability and competitiveness in the market.


Pips are important in forex trading because they determine the profits or losses that traders make on their trades. In forex trading, traders buy a currency pair at a lower price and sell it at a higher price (or vice versa) to make a profit. The difference between the buy price and the sell price is called the spread, and it is measured in pips.


For example, if a trader buys the EUR/USD currency pair at 1.2345 and sells it at 1.2355, the trader has made a profit of 10 pips (1.2355 - 1.2345 = 0.0010). Similarly, if a trader buys the USD/JPY currency pair at 109.05 and sells it at 108.95, the trader has made a loss of 10 pips (108.95 - 109.05 = -0.0010).


As you can see, the value of pips can have a significant impact on a trader's profits or losses, especially when trading large volumes. That's why it's important for forex traders to understand and track the value of pips in their trades. They can use this information to manage their risk and make informed trading decisions.


FXPRO NEWS

Cash Back Commission

AXITRADER NEWS

Cash Back Commission

TICKMILL NEWS

Cash Back Commission


Trading Knowledge