Short Cut
In the previous example we saw a simple calculation to calculate the value of a PIP.
1) Multiply the deal size by the starting deal rate
2) Multiply the deal size by the starting deal rate + 1 PIP
3) The difference will equal the value of 1 PIP
Question - What is the value of 1 PIP on the GBP/USD (valued at 1.3332), when opening a 10,000 Deal size?
Answer-
10,000 X 1.3332 = 13,332 Dollars
10,000 X 1.3333 = 13,333 Dollars
$13,333 - $13,332= $1
1 PIP is worth $1
As shown in the two previous examples each time we calculated the PIP size, the value was always given in the secondary currency.
As the Forex market is a fast paced market and timing is an essential factor, traders often want to know their calculation within seconds, allowing them to enter or exit the trade.
Even though there are numerous ways (shortcuts) to calculate the value of a pip, this tutorial will demonstrate one popular method used among traders.
For rates with 4 digits after the decimal point:
Deal size / 10,000 = The value of a PIP in the secondary currency of the pair
For rates with 2 digits after the decimal point:
Deal size / 100 = The value of a PIP in the secondary currency of the pair
Example:
The value of a 10,000 Deal size (or mini lot) on the
EUR/USD (valued at 1.3434) is: 10,000/10,000= $1
Before heading on to the next lesson, remember that practice makes perfect.
If You Haven't Started Trading And Are
