Each trader starts working on the financial
market by exploring what Forex points are. However, it is necessary to master
the calculation process in order to apply this indicator effectively.
The cost of
one point depends on the position size. In Forex, the smallest position is 0.01
lot size (1 lot = 100,000 units of a base currency). For example:
For EUR/USD 1 point will cost EUR 100,000. For
GBP/USD 1 point will cost 100,000 pounds.
There are
two ways to calculate a pip in Forex:
The calculation is based on the following formula:
(0.0001/actual
rate) х price of 0.01 lot
For
example, the USD/CAD currency pair rate is 1.2450. One lot is worth $100,000. Accordingly,
0.01 lot is $1,000 (100,000 х 0.01 = $1,000). Based on this, we get:
(0.0001/1.2450)х 1,000
= $0,08.
The calculation is based on the following formula:
0.001х price of 0.01 lot
For
example, the EUR/USD currency pair rate is 1.2251. One lot is worth EUR 100,000.
Accordingly, 0.01 lot is EUR 1,000 (100,000 х 0.01 = EUR 1,000). Based on this, we get:
0.001 х 1,000 = $0,1 (please note that the final result
is still in dollars).
Once you've
figured out what Forex pips are, and memorized just a couple of formulas, you
can easily calculate your losses and profits, effectively measuring your
actions.