Pips: An Overview



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What is PIP?

“Percentage In Point” or PIP is the unit of size to show the changes in value between two currencies. A PIP or PIPS is generally 1/10,000 and is commonly positioned in the fourth decimal place.

However, there is an exception to this regulation, which is the Japanese Yen since it is denoted in the second decimal place. There are brokers that estimate currency pairs in the fifth or third decimal position, namely Fractional Pips or “pipettes.”

To understand better the meaning of PIP, here’s an example:

Let us say, you bought 1 lot of EUR/USD at an exchange rate of 1.1225, and it plunged to 1.1215, that means you actually lost 10 PIPS. On the other hand, if the price increased to 1.1240, you earned 15 Pips.

PIP Calculation

How do you compute a pip? Assuming that we already have discussed what a pip is, we learned that it is the 1/10,000 and is designated in the fourth decimal position. Therefore, a pip is equals to 0.0001.

 

Computing the Rate of One PIP

Say for example, the EUR/USD exchange rate is 1.0935, we divide the pip in decimal to the exchange rate, and the answer would give you the value of one pip of EUR/USD. Therefore, one pip of EUR/USD is equivalent to 0.00009144.

 

Calculating the Lot Value of One PIP

Let’s say you want to buy 100,000 of EUR/USD, and the exchange rate is 1.0935. In order to get the price of each pip, we need multiply the value of one pip by your lot price. Therefore, the price of each one pip that you own is worth 9.14.

 

Computing Profits with PIPs

If EUR/USD bid ask price is 1.0929 and 1.0935, and you bought 100,000 of EUR/USD at an asking rate of 1.0935, but then few hours later, the EUR/USD price has changed to 1.0950/1.0965, your exchange rate rose to 1.0950. However, you then decided to close the deal.

To compute how much pips you have profited, simply subtract the “ask price” which you purchased to the “bid price,” then multiply it by 10,000.

You have received 15 PIPs profit. Now, to compute your profit, just take the number of pips you earned and multiply it by the worth of your pips.

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