Calculating PIPS in Forex Trading
What is a pip and what role does it play in the forex market? In forex trading, a pip is the unit of measurement for the smallest change in the price of a currency or currency pair. With each price levels achieved, it should be fairly easy to mathematically determine the amount of movement in a particular currency as expressed in pips.
Forex is the simultaneous buying of one currency and selling of another. It is important to understand that trading currencies is a very risky form of investing, and any funds used when speculating on the values of currency prices should be considered risk capital. Let’s start off by taking a look at a scalp trading with an automated forex trading system. Making a profit on forex trading means watching the fluctuations of PIPS.
For most, but not all, currencies a pip is 0.0001 or 0.01%. So, when a currency moves from a price of 1.7800 to 1.7805 it is said to move 5 pips. In any quote the US Dollar can be either the base currency or the counter or quote currency and we’ll start by considering the situation when the US Dollar is the quote currency as in the case of EUR/USD, CAD/USD or GBP/USD. Bearing in mind that a standard interbank lot size is 100,000 this means that 100,000 UK Pounds are worth 193,400 US Dollars.
On the other hand, if the price goes up to 1.2007/1.2010 and you are quoted 1.2009/1.2010, you may decide to exit. But you get filled at 1.2007, the real price, instead of 1.2009.
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