Wednesday, January 23, 2008
at
2:24 AM
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Understanding pips is extremely important as a pip denotes the smallest movement in the price of a currency and it is this movement which determines your profit or loss when closing your trading position.
Perhaps the easiest way to understand how to calculate pip values is to start by looking at currency pairs involving the US Dollar. In any quote the US Dollar can be either the base currency or the counter or quote currency and we'll start by considering the situation when the US Dollar is the quote currency as in the case of EUR/USD, CAD/USD or GBP/USD.
From this we can see that with the US Dollar as the quote currency a pip will have a value of $10 for a standard trading lot but that the pip value will vary with the market price when the US Dollar is the base currency.
Perhaps the easiest way to understand how to calculate pip values is to start by looking at currency pairs involving the US Dollar. In any quote the US Dollar can be either the base currency or the counter or quote currency and we'll start by considering the situation when the US Dollar is the quote currency as in the case of EUR/USD, CAD/USD or GBP/USD.
From this we can see that with the US Dollar as the quote currency a pip will have a value of $10 for a standard trading lot but that the pip value will vary with the market price when the US Dollar is the base currency.
Posted by
ramana
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