Currency Pips
The most common increment of currencies is the PIP. If the EUR/USD moves from 0.9550 to 0.9551 that is one Pip. A
pip is the last
decimal place of a quotation. The Pip or POINT as it is sometimes referred to depending on context is how we will
measure our profit
or loss.
As each currency has its own value it is necessary to calculate the value of a pip for that particular currency. We
also want a
constant so we will assume that we want to convert everything to US Dollars. In currencies where the US Dollar is
quoted first the
calculation would be as follows.
USD/JPY: Example JPY rate of 116.73 (notice the JPY only goes to two decimal places, most of the other currencies have four
decimal places), 1 pip would be .01 so to calculate the pip value in dollars (.01 divided by exchange rate = pip
value) so .01/116.73=0.0000856
USD/CHF: (.0001 divided by exchange rate = pip value) so .0001/1.4840 = 0.0000673
USD/CAD: (.0001 divided by exchange rate = pip value) so .0001/1.5223 = 0.0001522
In the case where the US Dollar is not quoted first and we want to get to the US Dollar value we have to add one
more step:
EUR/USD: (0.0001 divided by exchange rate = pip value) so .0001/0.9887 = EUR 0.0001011, but we want to get back to
US Dollars so
we need to do another little calculation which is EUR X Exchange rate so 0.0001011 X 0.9887 = 0.0000999 when rounded up it
would be
0.0001.
GBP/USD: (0.0001 divided by exchange rate = pip value) so 0.0001/1.5506 = GBP 0.0000644 but again we may want to get back to
US Dollars
so we need to do another little calculation which is GBP X Exchange rate so 0.0000644 X 1.5506 = 0.0000998 when rounded up
it would be
0.0001.
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