What is Pip? How is it calculated?

Pip is one of the terms that investors who invest in the forex market will encounter a lot at first. Some terms may confuse the user and are difficult to understand when starting to trade. However, I think you can understand the terms through a simpler, exemplary article instead of the articles that cause confusion and complicate the event.

What is Pip?

The smallest unit that measures the price movements in the parities is called the Price interest point. Price movements in all parities traded in Forex are expressed in pips. It is also used to express the difference between trading in forex trading instruments, that is, spreads. How is the pip value determined?

When determining the pip value, we come across 3 factors. What the currency pair is, how big is the trade, whether the market is liquid. Economic and political behaviors of countries affect liquidity.

How to Calculate

When calculating it, we look at the pairs. Many pairs use 4 digits after the comma. A pip is equivalent to 0.0001 on most pairs. In this case, 1 pip is equal to 1/10,000. However, in some parities, 2 digits are used after the comma. In those parities, the quotation value is calculated over 0.01, that is, the sensitivity is 1/100. However, in parities where USD is the base currency, the pip is calculated differently.

Important note: The pips level varies from instrument to instrument. We have said above how it is in pairs. The value can be different in indices, commodities and stocks. For example, the smallest digit after the comma in the gold price is the pip value. In other words, if the gold price is 1253.79, the value is ”9” here. Also, if you want to know what will happen to gold prices in the coming days, you can read our article. Another example is EURSEK prices. Here, the 4th digit after the comma is the pip. So when EURSEK is 10,4107, the it becomes “7”.

Point Note

Point is used to express one-tenth of a pip. So the pip is 10 times the point. Forex traders who will trade at high volumes take points into account. For example, when EURSEK drops from 10,41073 to 10,41061, it has experienced a decrease of 12 points. This is equivalent to 1.2 pips.

SEE ALSO; What are Forex Investment Tools?

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