What is a Pip in Forex?
Pip is the profit loss counting scale or unit in forex. Measurement of profit loss gets counted in forex in term of pip or pipette. Example, if EUR/USD quoting at 1.1350 & market gain valued at 1.1351, change 0.0001 which means 1 pip. Value of pip differs with the brokerage instruments 4 digits or 5 digits decimal point count. 4 Digit brokerage account means the broker will quote the EUR/USD as 1.1350. You can see the number there are 4 digits after the decimal point. 5 Digit broker account means the broker will quote the EUR/USD as 1.13506. You can see the number there are 5 digits after the decimal point.
In case of 4 digit quotation 1 pip = 1 point.
Means if EUR/USD moved from 1.1350 to 1.1351 then change is 0.0001 i.e 1 pip.
In case of 5 digit quotation 1 pip = 10 points.
Means if EUR/USD moved from 1.13506 to 1.13516 then change is 0.00010. i.e 1 pip
More Forex Pip Example
If USD/CAD quoting at 1.1015 & market rose up to 1.1020 then change is 0.0005 i.e 5 pips. If USDJPY moved down from 112.50 to 112.30, the difference is 0.20 or 20 pips.
Profit Loss Counting of Pips:
How profit loss gets counted in terms of pips? Suppose a trader bought GBPJPY at 131.50 and 2 hours later, the market moved to 131.70. Then the change is 20 pips, so the trader earned 20 pips profit. If GBPJPY price fell to 131.10 then he will lose 40 pips.
Calculating Pip Value:
Now in terms of monetary value of profit & loss, the trader need to multiply the pip monetary value with the number of pips changes. For 4 digit & 5 digits brokers, these pip values differ. Pip value main depends on the account currency & lot size. Lot size means how much, the quantity of trade volume. In forex, lot size starts from 0.01(micro lot) to 100 or more. Lotsize also get abbreviated as position size, 0.01 lot = 1000 units.
If you are trading EURUSD quoting at 1.2510 with a position size of 1000 units (0.01 lot), account currency in US dollar. Pip value would be 0.10 cent per pip. If you make 20 pips profit. Then the monetary value of your profit will be 0.10 * 20 = $2 dollar. If your buy position is at -40 pip loss, then you will lose 0.10*40 = $4 dollar etc.
If the account currency was in Euro, then the pip value for the same example above will be different. It will be €0.08 cent in euro.
Profit of 20 pips will be valued as 20*0.08 = €1.6. With 40 pips loss will be valued as 40*0.08 = €3.2. You can view our calculator to calculate pip value in different currencies for different forex currency pairs.