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What are Forex Points and the Basic Rules for Their Calculation
What are Forex Points and the Basic Rules for Their Calculation

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.

All You Need to Know for Determining a Pip

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 dollar is the base currency (USD has the first place in the pair, e.g. USD/GBP).

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 dollar isn’t the base currency (USD has the second place in the pair, e.g. GBP/USD).

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.


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