In measuring a value, every calculation will certainly have a unit. As in calculating a length, height, width will require cm units, to measure a volume will require liters units. While in trading, there are also units to do the calculation.

You must have heard a lot of terms pips, pipettes, or lots when trading. To measure a change in the exchange rate, a unit called Pips will be used. For that, this time we will learn what pips mean in trading.

This means that pips themselves are the smallest point units to measure changes in exchange rates between two currencies. Before learning more about how to calculate pips, it would be better if we learn what pips mean and what pips stands for.


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Meaning of Pips in Forex

Pip stands for Price Interest Point or commonly referred to as Point In Percentage. As explained earlier, the meaning of pips is a unit of measurement for changes in exchange rates between two currencies. Pip is the smallest point unit to represent price changes in forex trading, or more clearly the meaning of pip is the last decimal place of the price quote.

Due to this, the accumulation of profits and losses during the running position following the price movement in forex will be calculated in pip units. Meanwhile, there are also pipettes which are fractions of a pip. This will apply to brokers who quote currency pairs outside the standard 4 and 2 digit decimal places, to 5 and 3 decimal places.

But for now, we will just learn how to calculate pips before going any deeper.

How to Calculate Pips in Each Forex Pair

After learning what pips mean in forex, now we will continue to learn how to calculate pips on each forex pair. Although later you don't need to bother calculating the pip value, there are still pip values ​​that are not displayed.

Or for those of you who are still curious about how to calculate these pips even though you have used a forex pips calculator, you can still learn this in the article below. Please also note, the value of one pip point will vary. Depending on the currency pair you will trade. For more information, you can learn below.

Calculating Forex Pips

Because each currency will have a different calculation, you must pay attention to how to calculate these pips depending on the type of currency you want to exchange.

Before calculating pips, it is necessary to know the contract size in trading. This forex trading cannot be done per dollar, but based on a certain type of contract. As a reminder, the pip value is calculated by multiplying one pip (0.0001) by the specified lot/contract size. In general, there are three types of contracts:
  1. Standard contract: 1 lot = 100,000 units. If trading with the base currency of US dollars, it is called one hundred thousand USD.
  2. Mini contract: 1 lot = 10,000 units. If trading with the base currency of US dollars, it is called ten thousand USD.
  3. Micro contract: 1 lot = 1,000 units. If trading with US dollars it is called one thousand USD.
Usually when opening a trading account, traders will determine the type of trading account they will use. You can also determine whether you want to sell and buy with standard, mini, or micro contracts. In addition, there are also four decimal digits that are generally used to measure currency pairs with EURUSD or commonly called Direct Pair, while those using 2 decimal digits to measure currency pairs with USDJPY or commonly called Indirect Pair.

Pips EURUSD

For those of you who do not understand how to calculate EURUSD pips, it is expected to always remember the value of one point is calculated from the 4th number after point 1. For example, in EUR/USD moving from 1.1050 to 1.1051, the increase of $0.0001 is called one pip.
 
As another example, the calculation of one pip point on the EUR/USD pair 1.14013 is the 4th number after the point. Or another example, EUR/USD 1.123400 with an increase of up to 1.123410 means one pip.

Pips AUDUSD

AUD/USD is a Direct Pair or major pair with USD as the quote currency. So it has the same calculation as EUR/USD.
  1. Pip = lot size (number of base currency units) x tick size (pip position in the row of numbers after the decimal).
  2. Meanwhile, to calculate profit and loss in forex trading, you need to know the difference in exchange rates between the open position value and the closed position value.
  3. Profit or loss = exchange rate difference x pips.

Pips GBPUSD

GBP/USD is also a Direct Pair which is a major pair. So you can also follow the calculation of EUR/USD with the same formula. For example: The EUR/USD pair shows an exchange rate of 1.08250. So, 1 pip on a standard trading lot is worth:
  1. Pip = 100.000 (standard lot) x 0.0001.
  2. Pip = 10.
  3. In other words, every 1 pip on EUR/USD with 1 standard lot is worth US$ 10.

Pips USDJPY

USD/JPY is part of the Indirect Pair which means a pair with USD as the base currency. So it has a calculation with a different formula from the Direct Pair. For the calculation method, you can use the formula: Pip = (lot size x tick size) / current rate (current exchange rate).

Pips USDCHF

USD/CHF is also part of the Indirect Pair which means a pair of USD with a base currency. So you can use the same formula as USD/JPY. Or more easily you can see the example below. The USD/JPY pair shows an exchange rate of 111,500, then the value of 1 pip on a standard lot is as follows:
  1. Pip = (100.000 x 0.01) / 111,5.
  2. Pip = 8.97.
  3. This means that every 1 pip on USD/JPY with 1 standard lot is worth USD 8.97 or around US$ 9.

Pips USDCAD

USD/CAD is included in the Indirect Pair which means you can follow the formula and example above as the calculation. Or for other examples as follows.
  1. USD/JPY pair with price 119.80 (two digits behind the comma) in the case of USD/JPY pair 1 pip means 0.01. While for pairs with 4 digits behind the comma, then 1 pip is 0.0001.
  2. If on USD/CAD then, 0.0001 divided by the forex rate,
  3. Pips value 0.0001/ 1.4890 = 0.00006715.

Pips NZDUSD

For NZDUSD this is a Direct Pair that will have the same calculation as EUR/USD. For the calculation of profit and loss, you can see the example below.
  1. Profit/loss = (selling price-buying price) x contract size x lot.
  2. For example, buy 4 standard lots of EUR/USD 1.2500 then sell 4 standard lots of EUR/USD 1.2570.
  3. Profit = (1.2570 - 1.2500) x 100.000 x 4.
  4. Profit = $2.800.
  5. Sell 1 lot standar GBP/USD 2.0010, buy 1 lot standar GBP/USD 2.0000.
  6. Profit = (1.2010-1.2000) x 100.000 x 1.
  7. Profit = $100.
With different currency types, the pip value must be interpreted into whatever currency is being traded in the trading. On a denomination account, the pip value calculation is determined by simply multiplying or dividing the pip value found by the exchange rate of your account currency to the desired currency.

If the currency of the desired pip value is the same as the base currency in the exchange rate. If the converted currency is the quote currency of the exchange rate, all you need to do is divide the found pip value by the corresponding exchange rate ratio.
 
And if the converted currency is the base currency of the conversion exchange rate ratio, then multiply the found pip value by the conversion exchange rate ratio.

Calculating Commodity Pips

In addition to how to calculate pips on forex, there are also commodity pips. Gold and Oil are types of commodities that you can do in trading activities. For that, this time we will learn how to calculate commodity pips from gold and oil. You can see the method below.

Pips Gold

For one pip point the value will vary depending on the currency pair being traded as explained previously. In XAUUSD/Gold, 1 pip will be calculated from 1 number behind the decimal point, for example: XAU/USD 1325.60 to 1325. 70 is 1 pip. For other examples, see below:
  1. 1681.55 - 1681.65 = 1 pips.
  2. 1681.55 - 1682.55 = 10 pips.
  3. 1681.55 - 1691.55 = 100 pips.

Pips Oil

You can also see how to calculate oil pips from the following formula:
  1. The contract value of 1 lot of Crude Oil = 1000 barrels. For example,
  2. 80.00 $/barrel rose to 80.01 $/barrel. This means the value increased by 0.01 $/barrel.
  3. 1 pip crude oil = 0.01 $/barel x 1000 barel = $10.
  4. Meanwhile, the margin/collateral value required for oil transactions is 1 lot = $2000.
  5. If traders have capital of 1 lot of crude oil and then buy or sell 1 lot, then if the price moves in the opposite direction, the value of 1 lot will only be able to hold the position up to 200 pips or,
  6. $2000/lot / $10 x 1 lot = -200 pip.

Calculating Pips Index

For those who do not know what trading index is, trading index is a heavy trading pattern and many argue that only certain people can do this trading. Trading Index itself is one of the futures trades consisting of a combination of shares of several selected companies in a country. In addition to trading index, this type of trading is also commonly referred to as Stock Index which functions as an indicator of the overall movement of the stock prices it represents and can even be an indicator for forex and gold.

There are still few traders who trade with this type of index. Because the risk is very high, not everyone can become a trader of this index. This index trading will be suitable for people who like to trade by bearing very high risks or known as high risk traders. In Indonesia there is also this type of index trading.

The largest stock index in Indonesia is the IHSG (Composite Stock Price Index) which contains all stocks from large companies traded on the Indonesia Stock Exchange. The value contained in the index is the average value of all existing stocks.
 
It should also be noted that if the price of stocks included in the index changes, the value of the index will also change. The performance of these stocks will affect the value of the index. If the stocks are good, then their index value can be high, and vice versa.

Not much different from other trading, the size of the contract value in index trading is determined based on the unit commonly known as lots. Of course, each country has its own rules in regulating index market trading. And this time we will learn about how to calculate the pips index from Hangseng and Nikkei.

Pips Hangseng

For those who don't know what Hangseng is, Hangseng is a type of trading index consisting of 50 companies or issuers that have registered as members and reflect around 58% of the market capitalization on the Hong Kong stock exchange. For trading this Asian stock index usually starts from 5 pips with a maximum spread of 20 pips.
  1. Contract size for Hangseng index, HKD 50 X Index Futures Rates.
  2. The exchange rate remains HKD 1 = Rp 1,000.
  3. with a pip value per 0.1 lot, USD 0.50 = Rp 5,000.

Pips Nikkei

Meanwhile, for those who don't know what Nikkei is, Nikkei is a type of Asian trading index that contains 225 companies and each movement is 1 pip. Nikkei is very popular among investors in Asia and Europe, making it the main stock exchange in Tokyo.
 
This index was created through a Japanese economic newspaper. For those of you who want to do index trading, it's a good idea to try Nikkei because the risk is still relatively small. The number of pips required is no different from the Hangseng index, starting from 5 pips with a maximum spread of 20 pips.
  1. The contract size for the Nikkei index is 500 yen x Index Futures Rate.
  2. With a fixed exchange rate of 1 yen = IDR 100.
  3. For pip value per 0.1 lot is the same as Hang Seng index, namely, USD 0.50 = IDR 5,000.

Benefits of Knowing How to Count Pips

For those of you who already know how to calculate pips, of course there are advantages to this knowledge. Because each currency pair is different, the pip value will also be different. With this knowledge of how to calculate pips, you will certainly be able to calculate and distinguish how many pips are needed for each trade.
 
In addition, you can also give a monetary value to their take profit target and can stop your loss level in trading. Instead of just analyzing the movement in pips, traders can also determine how the value of their trading account (equity) will fluctuate when the currency market starts to move.

In addition to this unit value term, there are certainly other terms that you need to know in the world of trading. You should continue to seek information about all things trading at every opportunity and in any media.

Thus the discussion from GIC Indonesia regarding what pips mean. Don't forget to keep looking for information related to banks, forex, and other finances, such as "What are Securities? This is the Definition and Types", only in the GIC Journal. Also make sure you deepen your forex knowledge at GIC Indonesia, via ebook scalping, and also NFP live trading.


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