Unlike stocks and investments in other markets, currency prices in the foreign exchange, or forex, market move in tiny increments called pips. To figure your profit or loss on a trade, you need to know how many pips you gained or lost and the dollar value of each pip. Currencies trade against one another in pairs and are typically quoted to four decimal places.
The fourth decimal place represents one pip. At first glance, a one-pip move of 0. Log in to your forex trading account and look up the opening price, closing price and the number of units of currency of one of your trades.
You can typically find this in the "Account History" section. As an example, assume you bought 10, euros versus the U. Subtract the opening price from the closing price to determine the positive or negative price change. In this example, subtract 1.
Multiply your result by 10, to determine the number of pips you gained or lost. If you initially bought the first currency in the pair, a positive result indicates a gain, while a negative one is a loss.
Conversely, if you initially sold the currency, a negative number represents a gain. In this example, multiply 0. In this example, divide 0.
Multiply your result by the number of units you traded to calculate the value of each pip in terms of the first currency in the pair. Do this only if the U. Traders aim to make pips on foreign currency trades. Tips Unlike other currencies, the Japanese yen is quoted to two decimal places; one pip is 0. If you trade the U. For example, if you bought the U.
Some brokers quote currencies to five decimal places and quote the yen to three. Pips and Pipettes Babypips. Photo Credits Digital Vision. More Articles You'll Love. How to Understand Grain Market Prices. Breakout Bounce Trading Strategy. How to Calculate Covariance of Stocks. How to Use Forex Bounce Strategy.
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