Pips and how to calculate profits in Forex trading – A detailed guide for beginners -

Pips and how to calculate profits in Forex trading – A detailed guide for beginners

Author: Michael view: 56 Update: 20/11/2023 Downloads: 0

Forex trading is a large and rapidly growing financial market that attracts many investors and traders worldwide. During trading, traders need to have a clear understanding of basic concepts to be able to calculate their profits and losses accurately. In particular, pips is an important and widely used concept in Forex trading. This article will help you better understand Pips and how to calculate profits in Forex trading .

What are Pips in forex?

Pips and how to calculate profits in Forex trading - A detailed guide for beginners

Pip stands for point in percentage, which is the smallest unit of measurement in the Forex market. This is a basic and important concept in Forex trading, used to measure the price change of a currency pair in fourth decimal units. One pip is equal to 0.0001, which is equivalent to 1/100 of 1%.

For example, if the price of the EUR/USD currency pair increases from 1.1200 to 1.1205, the price has increased by 5 pips. Similarly, if the price drops from 1.1200 to 1.1195, then the price has decreased by 5 pips.

How to calculate pips in forex

Pips và cách tính toán lợi nhuận trong giao dịch Forex - Hướng dẫn chi tiết cho người mới bắt đầu

The simplest pip calculation formula is:

Pip = (Tỷ giá hối đoái mới - Tỷ giá hối đoái cũ)

For example, if the price of the EUR/USD currency pair increases from 1.1200 to 1.1205, then:

Pip = (1,1205 - 1,1200) = 0,0005

To calculate pip for other currency pairs, you simply change the decimal to the fourth unit of that currency pair. For example, if you want to calculate pips for the GBP/USD currency pair, you would use the fourth decimal of the British Pound Sterling (GBP), which is 0.0001.

The concept of pips in the foreign exchange market

As mentioned above, pips are used to measure the price change of a currency pair in fourth decimal units. For most currency pairs, one pip is equal to 0.0001. However, for currency pairs with the Japanese Yen (JPY) in the composition, the rate is quoted with two or three decimal places, and one pip is the change of the second or third decimal place.

For example, if the price of the USD/JPY pair increases from 109.50 to 109.55, the price has increased by 5 pips. In this case, one pip is equivalent to 0.01 Japanese Yen.

The simplest pip calculation formula for beginners

Pips và cách tính toán lợi nhuận trong giao dịch Forex - Hướng dẫn chi tiết cho người mới bắt đầu

For Forex trading beginners, calculating pips can be difficult and confusing. However, there is a simple and straightforward formula to calculate pips quickly and accurately:

Pip = (Investment amount * Number of pips) / Exchange rate

 

For example, if you invest 100 USD in the EUR/USD currency pair and the price increases by 5 pips, your profit will be:

(100 * 5) / 1,1200 = 4,46 USD

Similarly, if the price drops by 5 pips, you will lose 4.46 USD.

Calculate profits from trading in pips

Calculating profits from trading pips can help you make accurate and effective investment decisions. If you understand pips well and know how to calculate profits, you can easily calculate the profit/risk ratio of a trade.

For example, if you want to place a buy order on the GBP/USD currency pair with an investment of 500 USD and a profit target of 50 pips, your profit will be:

(500 * 50) / 1,3000 = 19,23 USD

However, if the price drops by 50 pips, you will lose $19.23. Therefore, calculating profit and risk before placing an order will help you have an accurate and effective trading plan.

Factors that affect the value of pip

There are several factors that influence the value of pip in Forex trading, including:

  • Exchange rate: The exchange rate is the most important factor that affects the value of a pip. When the exchange rate increases, the value of the pip also increases and vice versa.
  • Trade size: Trade size also affects the value of the pip. For the same number of pips, a larger trade will yield larger profits than a smaller trade.
  • Base Currency: The base currency is the currency used to calculate the value of a currency pair. For currency pairs that do not have USD as the base currency, the pip value will be calculated in that base currency.
  • Price fluctuations: Price fluctuations also have an effect on the value of pip. When the market is highly volatile, the value of pip can increase or decrease suddenly.

Use the pip calculator to make trading decisions

To calculate pip quickly and accurately, you can use online pip calculators or Forex trading software. These tools will help you calculate the profit and risk of a trade in pips and current exchange rates.

In addition, using these tools also helps you make accurate and effective trading decisions, especially when the market is highly volatile and you need to calculate quickly.

Benefits of understanding pips in Forex trading

Understanding pips and how to calculate profits from pips trading will help you:

  • Make accurate and effective trading decisions.
  • Calculate the profit/risk ratio of a transaction.
  • Control risks and optimize profits in trading.
  • Gain a better understanding of how the markets work and the factors that influence the value of pip.

Tips to calculate pips accurately and quickly

To calculate pips accurately and quickly, you can apply the following tips:

  • Use online pip calculators or Forex trading software.
  • Get familiar with decimal numbers and know how to move decimals to calculate pips for different currency pairs.
  • Practice pip calculations on simulated trades before starting real trading.
  • Monitor exchange rates and price fluctuations regularly for a market overview and more accurate pip calculations.

Conclude

Pips are an important and necessary concept in Forex trading. Understanding pips and how to calculate profits from pips trading will help you make accurate and effective trading decisions, control risks and optimize profits in trading. Hopefully this article has helped you better understand Pips and how to calculate profits in Forex trading . Wishing you success and luck in your next transactions!

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