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Pips and Lots
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In this article we will explain how to understand profits beign made through pips and lots. The pip is the last figure of the quoted price and therefore you need to trade in lots to see real profit. The Pip value is different for each pair, so let's take an example to calculate what is a pip worth.
In the EUR/USD pair, we see the exchange rate at 1.3508. In the pair USD/JPY, we see the exchange rate at 121.14. There are 4 decimals in the EUR/USD pair; and 2 decimals in the USD/JPY but the pip is ALWAYS the last figure. So in the EUR/USD, 1 pip is 0.0001, and in the USD/JPY pair, 1 pip is 0.01.
The formula of the EUR/USD pip value is : 0.0001 / exchange rate = pip value. So :
0.0001/1.3508 = 0.0000740 Euro. You can see this is a really low amount of money. That is why we need to trade with lots.
So if you traded a $20,000 lot, bought at 1.3498 and sold at 1.3508 you would have a pip value of : 0.0000740 x 20,000 = 1.48 euro.
You won 10 pips : 10 x 1.48 = 14.8 euros profit
Note : When you make a buy trade (long position) the pip value will be calculated with the selling price (when you close your position). When you go short (sell) the pip value will be calculated with the buying price (at which you close the position).
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