If you are interested in the Forex market, you have most likely come across the terms “paragraph
" or "
pips
", very common concepts in trading. But what is a pip? What about the point?
In this article we will take a closer look at what a pip and a pip are.
in forex trading, how useful this concept is in forex trading and
how to calculate pip
.
What is a clause? Point and pip - what's the difference?
What is a pip in Forex?
Paragraph
(from the English
pip
) is a standard unit for measuring how much the exchange rate of a particular trading instrument has changed.
Originally, a point in trading reflected the minimum change in the price of an FX instrument, however, with the advent of more accurate pricing methods, this original definition of a Forex point is no longer relevant.
Traditionally, Forex prices were quoted to a certain number of decimal places - most often four decimal places - so, originally, a point was the minimum price change to the 4th decimal place.
The pip value on Forex has changed slightly. Many brokers now quote Forex prices to the nearest fifth
decimal place; therefore, the pip is usually not the last decimal place in the quote.
We gradually approached the answers to the questions “What is a pip in trading?”, as well as “What is the difference between a pip and a pip?” A pip or "percentage point" is the basic unit of measurement for price differences, and a pip
(from the English
point
) - this is the minimum amount of price change (usually the 5th decimal place).
The relationship between these concepts is as follows: 1 point = 10 pips.
Example
:
- The difference between 1.856 5
8 and 1.856
6
8 is 1 point. - The difference between 1.8566 3
and 1.8566
8
is 5 pips.
❗ It is important to note that sometimes confusion may arise between these concepts in Russian due to actually opposite translations of these concepts, so remember: “pip” is a point, and “point” is a pip
.
The item is a standardized value across all brokers and platforms, so traders can speak the same language without confusion in terminology.
A great way to familiarize yourself with how pips and pips work in trading is with a demo account with Admirals. It allows you to test the trading platform and practice your ideas and strategies in a virtual trading environment, without risking your own real funds. Try it now, completely free, by clicking on the banner below! ▼▼▼
The best brokers for trading
We have figured out what this clause is, and now I will briefly list reliable brokers with whom you can open an account and not be afraid for your money. I recommend taking a closer look at:
- Exness – leverage changes from 1:2 to 1:2000. For the account Classic the entrance threshold is too high (as much as $2000), but there is no such restriction for other accounts.
The broker impresses with its small spread and very fast execution .
According to these parameters, the company is No. 1, suitable for any trading style. Open an account with Exness with low spreads - AMarkets – I’m not happy with the limitation in the form minimum threshold of $100 according to accounts Fixed. Otherwise, the broker is not bad for those who are going to limit themselves to the foreign exchange market and contracts for difference. The spread is slightly higher than in Exness.
In reviews I sometimes came across messages about poor execution of transactions, but I never encountered this myself.
An article on slippage will soon explain what such problems can lead to. Register an account with Amarkets - Just2Trade – the key feature of the company is access to any trading platforms to operate on the stock market. You can buy any shares, threshold to open an account is only $200.
This is the best offer to start in the stock market.
On Forex, trading conditions are inferior to the first 2 companies. Open an account for the US market on just2trade
You can start trading in any of the listed companies. Just remember that by the time you open an account, you should already have a working strategy and an understanding of how financial markets work. It is better not to go into trading without preparation .
Calculation of item value
Many traders ask the following question: what is 1 point equal to? For most currency pairs, one pip is the change to the fourth decimal place. The most notable exception is the Japanese Yen (JPY) pairs, in which one pip is calculated at the second decimal place, since these instruments are quoted in three digits.
The table below shows basic information on points of some of the most popular Forex currency pairs:
| Currency pair | One point | Price (example) | Lot size | Item cost (1 lot) |
| EUR/USD | 0.0001 | 1.16671 | 100,000 EUR | 10 USD |
| GBP/USD | 0.0001 | 1.31114 | 100,000 GBP | 10 USD |
| USD/JPY | 0.01 | 113.553 | 100,000 USD | 1000 JPY |
| USD/CAD | 0.0001 | 1.27326 | 100,000 USD | 10 CAD |
| USD/CHF | 0.0001 | 0.99543 | 100,000 USD | 10 CHF |
| AUD/USD | 0.0001 | 0.76260 | 100,000 AUD | 10 USD |
| NZD/USD | 0.0001 | 0.69008 | 100,000 NZD | 10 USD |
To better understand what a pip means in trading, let's look at an example. Let's assume that you want to trade one of the major currency pairs - EUR/USD - and decide to buy one lot.
One lot costs 100,000 euros. In the case of EUR/USD, one point is 0.0001. Therefore, the value of one item for one lot is 100,000 x 0.0001 = $10. That is, if the price changes by one point, your profit or loss will be 10 US dollars.
Let's say you buy EUR/USD at 1.16650 and then close your position by selling one lot at 1.16660. The difference between these two will be:
1.16660 — 1.16650 = 0.00010
In other words, the difference is 1 point. Your profit will be 10 US dollars.
How to calculate the cost of a point: example
Let's look at the previous example in a little more detail to better understand what a clause is. You opened a position at a price of 1.16650 by buying one contract. This is equivalent to a purchase of 100,000 euros. That is, you sell dollars to buy euros. The value of the dollars you sell is determined by the exchange rate:
- 100,000 euros x 1.16650 = 116,650 US dollars
After buying 1 lot, you closed your position by selling one contract at a price of 1.16660. Now you are selling euros and buying dollars:
- 100,000 euros x 1.16660 = 116,660 US dollars
This means that you initially sold $166,650 and ended up with $166,660, so your profit was $10. From this example, you can see that a one point move in your favor earned you $10.
1 point is equal to 10 units of quote currency
(that is, the currency in second place in the pair), if we are talking about
a position with a volume of one lot
(which is always equal to 100,000 units of the base currency - the currency in first place in the pair).
A movement of 10 points costs 100 units of the quote currency. A movement of 100 points costs 1000 units of the quote currency, and so on.
Results
The main thing to take away from this material is the definition of points (pips) and an understanding of what affects their value . This is necessary at least in order to evaluate the result of the transaction in the deposit currency. You are unlikely to carry out manual calculations; this makes no sense if you have online calculators. I examined this issue in detail for a better understanding of the theory.
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Forex item: currency pairs with three-digit quotes
The most famous currency in this case is the Japanese yen. Currency pairs that include the yen are quoted to three decimal places, so the pip for such pairs is calculated to the second decimal place.
So let's look at how pips are calculated using the USD/JPY currency pair as an example: If you sell one lot of USD/JPY, lowering the price by one pip will help you earn 1000 yen.
Let's look at an example pip calculation to understand why:
USD/JPY pip calculation example
- Let's say you sell
2 lots of USD/JPY at a price of 113.407. One USD/JPY lot costs 100,000 US dollars. Therefore you sell 2 x 100,000 US dollars = 200,000 US dollars to buy 2 x 100,000 x 113.407 = 22,681,400 Japanese yen. - Let's imagine that the price is moving against you and you decide to cut your losses. You closed your position at 113.907. The price rose from 113.407 to 113.907 against you by 50 points.
- So, you closed your position by buying 2 lots of USD/JPY at 113.907, that is: 2 x 100,000 x 113.907 = 22,781,400 Japanese yen.
- This is 100,000 yen more than the original amount it took to open the sell position, so your account currently has a loss of 100,000 yen.
- Losing 100,000 yen due to a 50 pip move means that for each point you lost 100,000/50 = 2,000 yen. Since you sold two lots, this value of one point is 1000 yen per lot.
If your account's base currency is different from the quote currency, this will affect the value of the pip. Is there a Forex pips calculator?
At Admirals you can use our Trading Calculator to easily determine pip value.
WebTrader with Admirals
In order to start trading on financial markets, it is not necessary to download a trading platform. You can start trading in the web version of the MetaTrader 4 and 5 trading platform directly in your browser, with virtual funds on a demo account
without
risking your funds
before you start trading on a real account. Just click on the banner below to go to WebTrader ▼▼▼
Advantages of pipsovka
- Less psychological stress during losses. Entries into the market are quite accurate, and losses are calculated in small amounts. In addition, with the right strategy, they can be easily compensated for by the following transactions.
- Developing the habit of working with risks. The need to make pinpoint entries with high frequency helps a trader develop his skills faster. Thus, the trader gets used to it much faster when moving to higher limits.
- Efficiency of trading strategy evaluation. In most cases, long-term strategies are similar to those that work on short time intervals. Thanks to the same high frequency of opening positions, a novice trader has the opportunity to evaluate a particular strategy in the shortest possible time.
What is a pip in trading: pips in MetaTrader
Let's look at how prices appear in MetaTrader 4 and 5 to further illustrate what a pip is in Forex.
The image below shows the GBP/USD order window in MetaTrader 4:
Source: MetaTrader 5 by Admirals, GBPUSD, order window. Disclaimer: The financial instrument charts in this article are for illustrative purposes and do not constitute trading advice or an offer to buy or sell any financial instrument provided by Admirals (CFDs, ETFs, shares). Past performance is not a reliable indicator of future results.
The quote in the image is 1.31192 / 1.31203. We see that the last decimal digit is smaller than the other numbers in size. This is done to highlight the pips. The difference between the bid price and the ask price is 1.1 points (or 11 pips).
If you look at the screenshot below of the other order window, you will see that the order type here is different - “Modify Order”:
Source: MetaTrader 4 by Admirals, USDCHF, order window. Disclaimer: The financial instrument charts in this article are for illustrative purposes and do not constitute trading advice or an offer to buy or sell any financial instrument provided by Admirals (CFDs, ETFs, shares). Past performance is not a reliable indicator of future results.
Please note that in the window you can select levels that are a certain number of pips (points). Here we are talking specifically about pips, that is, the fifth decimal place. If you select 50 pips here
, you will choose a level that
will be only 5 points
.
We tell you more about how to use the MetaTrader 4 and 5 platforms in our training video:
If you feel like you need more trading information and basic knowledge, we have an excellent, and more importantly, completely free
course
that will help you understand trading the right way! Just click on the banner below to take part! ▼▼▼
About us: Admirals
Admirals is a global, award-winning, regulated Forex and CFD broker offering trading in over 8,000 financial instruments on the most popular trading platforms in the world: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain, and should not be construed as containing, investment advice, recommendations or an offer or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future trading as circumstances may change over time. Before making any investment decisions, you should seek the advice of independent financial experts to ensure you understand the risks.
