Have you ever been interested in seeing how investing works or maybe you have a 401k and you wanted to know what compound interest is all about. Investing can be quite expensive to get started with especially for something like stocks. That is where Forex and even Crypto come into play because you can start with as little as $50.00 or you can demo for free. So now you are ready to start and the first thing you are confronted with instead of gaining dollars is gaining something called PIPS.
So What Are Pips In Forex Trading? A Pip (stands for Point In Percentage) is simply a unit of measurement that was created to show the change in value between two different currencies like USDCAD (U.S. Dollar vs the Canadian Dollar).
So for USD related pairs for example (most commonly traded) EURUSD one pip would equal 0.0001. EURUSD 1.16671 moves down to 1.16661 that is equal to 1 pip of movement.
For most currencies like EURUSD one pip of movement is calculated by the 4th decimal place that I have underlined above. This holds true for most all popular pairs with the exception of the Japanese Yen otherwise know as JPY (currency pair example EURJPY).
So going back to our example above if EURUSD 1.16671 moves down a pip to 1.16661 and you are in for a sell that means you gain 1 pip from that move. If you were in a by that means you would be down a pip or -1 pip so far in that trade.
It can be very confusing the best thing to do is to get right in and start demoing for free so you can see the different lot sizes and pip movements in action.
What is a pip worth in forex trading?
This will mainly depend on what account currency you are trading in. I trade in USD and try to keep it as simple as possible when it comes to calculating pips so I can make my risk management that much easier.
I will give you an example for USD based on account size that explains how much a pip is worth. Your average risk percentage per trade should be around 1-3% per trade so for this example I will use 3% with a stop loss of 30 pips.
So if you were trading with a $1000 account your lot size would be 0.10 = $1 per pip!
So 40 pips = $40 per day!
= $200 per week.
If you were trading with a $5000 account your lot size would be 0.50 = $5.00 per pip!
so 40 pips would be $200 per day!
= $1000 per week.
How pips are calculated:
To break it down further:
.01 lot size = $0.10 X 30 pips = $3.00 USD
.02 lot size = $0.20 X 30 pips = $6.00 USD
And so on and so on. So all you have to do is convert the lot size to dollars which most of the time you move one decimal to the left that will give you the USD amount per pip.
If that is still too confusing we go over lot sizes in another article or you can simply look for a calculator. They have online ones along with excel formatted ones.
We personally use a mobile app called Forex Trade Calculator of which we have no affiliation with. Try them out and thank us later.
What is 50 pips for example?
So if you were using a 30 pip stop loss in a $5,000 USD account a 50 pip trade would be worth $250.00 total with each pip worth $5.00. This would be with a 3% risk again.
Now you may be thinking it can’t’ be that easy and of course it can’t be. There are other things at that come into consideration mostly with what broker you are using because their spreads and fees can come into play on that. You can see more information on this at our resources page.
Forex pip value table:
Below is a table that gives you the calculations based on per pip movements which boils down to your lot size. The average price was taken into context for these. If you are just beginning I would simply stick to $ 0.10 per lot size of 0.01 to keep it much easier or at least use a calculator or the app we use.
|Currency||Standard Lot (1.0)||Mini Lot (0.10)||Micro Lot (0.01)|
How does stop loss affect my amount per pip?
Now this isn’t an advanced question but one you understand the power of a stop loss as your profit regulator it will define the way you trade. What do I mean by define the way you trade well it will mean the difference in you wanting to become a long-term trader vs a short-term trader or scalper.
A lot of traders mostly new ones always go out and post well I just made a 100 pip trade and I am on my way to 700 pips this week in trades, etc. Well that’s great and all but what was your stop loss in pips and your risk percentage?
I won’t go into too much detail behind why this makes such a different since having an entire article and video about this already. So for now I will give a quick explanation along with some examples.
So lets say that trader who profited 100 pips today used a 100 pip stop loss at 3% risk. That means they made 3% over the entire 100 pip move they traded.
Let’s take that same move of 100 pips and say they had a 50 pip stop loss at 3% risk. That means they made 6% over that same 100 pip move. Not bad at all you get 2 trades a week and that and you are making over 12% ROI without spread/fees taken into account. Try doing that with your bank.
This is where the power of the stop loss comes in as your profit regulator. I personally trade with both up to a 50 pip stop loss on my trades for the longer term swing trades but my favorite is using a 10 pip stop loss for my shorter term scalp traded. You can visit our other sections that go more into detail on longer term vs short term so you can get a feel for what kind of trader you want to be. Remember you can always demo as long as it takes to figure things out. The market is not going anywhere.