What are pips? An Overview

what are Pips

The forex market is one of the largest markets for trading currency pairs. These pairs are mainly traded through complex instruments and come with numerous benefits. Though the market is rewarding, it comes with a high risk of losing money if you do not have sufficient knowledge about market terminology and mechanism.

This article throws light on the two most essential terminologies of the current market, i.e. what are pips value and lot size. We will wrap up the article by providing you with the best forex broker for trading.

What Are Pips And The Value Of A Pip?

If you are the one who cannot afford to take the risk of losing money in the forex market, then it is vital to understand what a pip is? A pip in the currency market reflects the smallest price change any currency pair can go through, except for a fraction of pipettes or a pip. Decimal points play the main role in counting pairs. The last decimal mainly describes a pip.

One pip for most currency pairs is equal to 0.0001. Some currencies do not represent one pip as 0.0001. For example

  • In the currency pair, USD/JPY 1 pip is equal to 0.01
  • For metals such as Silver and Gold, one pip is equal to 0.01
  • The change in EUR/USD pair from 1.0925 to 1.0926 represents one pip
  • The five-digit pricing in EUR/USD pairs from 1.0925 to 1.0926 represents half a pip

How to calculate the pip value of currency pairs?

Calculating pip value for USD

The fixed pip for the USD amounts are:

  • Standart lot USD $10: 100,000 currency units
  • Mini lot USD $1: 10,000 currency units
  • Micro lot USD $0.1: 1,000 currency units
  • Nano lot USD $0.01: 100 currency units

These values apply to all currency pairs where USD is the quote currency such as AUD/USD or Australian dollar/ U.S. dollar, GBP/USD or British pound/U.S. dollar, EUR/USD, or euro/US dollar, and NZD/USD or New Zealand dollar/U.S. dollar.

Where USD is not a quote currency, it is the base currency. You can simply divide its pip values above by the USD/XXX rate.

Calculating pip value for a Non-USD currency pair

The pip values of currencies are fixed if they are listed in the quote currency. For instance, for CAD or Canadian dollar accounts, any pair in the form XXX/CAD, e.g., USD/CAD, will have a fixed value of a pip. CAD$1 is the mini lot, CAD$10 is the standard lot, and CAD$0.10 is the micro lot. If CAD is listed in the base currency, you need to divide the exchange rate with the fixed pip rate.

Suppose the pair has one of its currencies as Japanese yen, for instance, CAD/JPY. You need to multiply the outcome by 100 once you have divided it by the exchange rate. The reason for this is, pip for the yen is the second value after the decimal (0.01) rather than the fourth value (0.0001)

Calculating pip value for other currencies

Not all currency pairs need to incorporate your account currency. For example, you have a USD account and wish to trade EUR/GBP. So, in such a situation, how you will determine the pip value of for pairs.

The second or quote currency is always static if a trader has a trading account in that particular currency. For instance, if a person has a GBP account, then the pip value of EUR/GBP for a standard lot will be GBP 10. The next step includes converting this GBP 10 into your own currency. Divide this GBP 10 by the pair USD/GBP if your trading account is in the United States dollar. The pip value is about USD $12.98 in case the rate is 0.77025

Always see which currency is giving the pip value: YYY or the second currency. Once you determine this, you can convert the fixed value in the currency you own by dividing it by the pair XXX/YYY. Here, XXX represents your own account currency.

What is the lot size?

Lot size reflects the total size of your forex trade. In other words, a lot represents the number of currency units you want to trade in the foreign exchange market. Calculating the perfect lot size with several tools such as a risk management calculator or other similar providing the desired result can help you calculate the best lot size depending on your present trading assets.

The lot trading size directly influences how much a financial market shift impacts your trading accounts. For instance, a 100 pip shift on a relatively small trade size will not be held approximately as much as the similar 100 pip shift on a large trade size.

The lot sizes and associated number of units are provided in the following points.

  • For Nano size account: 100 units
  • For Micro size account: 1,000
  • For Mini size account: 10,000
  • For Standard lot size account: 100,000

Top Forex Brokers for Trading Currency Pairs

Several forex brokers are offering top-class services, good margin, top tools at affordable prices. Some of the excellent brokerage firms include:

1) InvestBy

It is one of the reliable and trusted brokerage firms regulated by the Cyprus Securities and Exchange Commission. The broker allows trading on a wide range of assets, including forex, cryptocurrency, commodity, stocks, indices, etc. The minimum deposit asked by the broker is as low as $250. Other features of the firm include:

  • Modern platforms such as MetaTrader 4 and Web Trader
  • Research tools such as trading signal, economic calendar, report season calendar, etc
  • Educational resources such as ebooks, webinars, tutorials, etc
  • Leveraged trading
  • Multiple account types
  • Dedicated customer support

Note: Traders must take care while trading on margin. There is a high risk of losing money while trading on high leverage. As leverage is a double-ended sword, it magnifies both losses and gains.

The Bottom Line 

You must have now understood what are pips value and lot size in forex and how to calculate both. It is not the end. There are several other vital terminologies that you require to know before starting trading in the forex market. You can avail the educational courses of Brokereo to enhance your trading knowledge. These courses include everything you need to know, from market terminologies to mechanisms.