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- What’s the Value of a PIP?
What’s the Value of a PIP?
If a lot is 100K of the base currency, how much is the value of a pip?
Well, let’s learn how to calculate our profit! Fine, profit and loss...
So we looked at the chart for example, and we spotted a pretty cool reversal, so we decided to buy 1 lot of EUR/USD. Our profit target was reached, and we managed to close the trade with a profit of 150 pips! Woohoo!
But how much is that in dollars? Well, the formula is simple:
We know that 1 lot means 100K and also made 150 pips profit. But the trick here is to write the pips in decimal notation. Remember that in most currency pairs the pip corresponds to the 4th digit after the decimal point.
The exception would be the Japanese Yen and the Hungarian Forint which corresponds to the 2nd digit after the decimal point.
So,150 pips in decimal notation would be 0.0150.
Check out the table here to get a better understanding.
Now, to calculate the profit in the quote currency, meaning, the US Dollar we simply multiply by 100,000.
100,000 x 0.0150 = $1,500.
That’s your profit!
Let’s take a look at another example, shall we?
This time we entered the market with 0.5 lots and made a profit of 80 pips. Not bad. Right?
Now let’s calculate our profit in the quote currency, in US dollars.
So, 50,000 x 0.0080 = $400!
Awesome!
What if we lose though? How do we calculate our loss?
Well, let’s say that after buying 1 lot of USD/JPY we, unfortunately, exited the trade with a loss of 50 pips.
In this case, the loss in the quote currency, the Japanese Yen, would be:
**100,000 x 0.500 = ¥50,000. **
Now you know how to calculate both your profit and loss!
