What is a pip?
Is pip is actually the smallest unit that is changing?
Partly, it introduced along with the development of e-commerce and it is due to increased turnover on the Forex market but also (which is very important for the traders) the reduction of transaction costs. Will probably all traders agree with me that the 1.6 pip spread is better than the 2 pip that is to be paid at a time where the quote was to the fourth decimal place.
What is the pip? It is said that the pip (percentage in point) is the percentage of the point. So if we want to find out where in the currency pair pipset is placed, we should first determine the position of the point.
In the example above, we have shown the quote on the two currency pairs. The first is EURUSD, for which the interest rate is 1,07957. The point in this case is in second place after the decimal (7), while the percentage of point (pip) is the fourth digit after the decimal point (5). The small figure at the end is a partial pip, whose value is 7.
A slightly different situation, we look at the quote with the japanese yen. As you can see from the example, there are three digits before the decimal point. The point is the first digit before the decimal (8), while the point is the second digit after the decimal point (6). The partial pip is, of course, in the end, and is halvparten of pip (5).
Attention on the misunderstanding
On MetaTrader 4 you can find a slightly different term than the point above.
Point on the MT4 platform is, of course, a delpip, i.e. the tenth part of the pip. If we modify our position and set stop loss and TP at the values listed in the above example, it turns out that they are staggered with 10 pips (100 on MT4 / 10 = 10 pips) from the current price ASK / BID.
Note! Also for the index will point to be treated differently than forex trading.
Possible change of the exchange rate may affect us with a profit or a loss, depending on which side of the market we find ourselves in. The amount of gains and losses depends on the size of the position. The higher our position, the higher is the value of the pip, and therefore profit / loss.
The value of the pip is always in the quoted currency, so if you will calculate the pipsvärdet for EURUSD it will be in us dollars.
How would you calculate the pipsvärdet for a default on the EURUSD?
1 lot = 100,000 units of base currency
1 pip for EURUSD = 0.0001 and, therefore, 100 000 x 0.0001 = 10 USD
If the balance on our account with the broker is deposited in Swedish kronor (SEK), we should necessary to do a transformation, e.g. $ 10 x USDSEK-course (e.g. 10 x 3,8134 = 38,13$).
In other cases, the situation will look like this: USDJPY-the pair, where a pip is 0.01, while its value is expressed in japanese yen (JPY): 100 000 x 0,01 = 1 000 JPY.