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/// Common Forex Terms: Pip Value

09 Jul / 2013
Author: champ Comments: 0

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All major currencies in the forex market are traded in lot sizes of 100,000 units of the currency which is the base currency. Hence, the change of 1 pip in the exchange rate of one currency would change the value of the quoted currency by 10 units. For example, in the currency pair of EUR/USD, if the exchange trading rate was at 1.3000 and if it changes to 1.3010, then you could understand that the price ratio between the euro and the U.S. dollar has increased by 10 pips.

If we continue the above example, when you buy 5 standard lots, you would be buying 500,000 Euro (5 x 100,000) and you would have to pay USD 650,000. If you close your trading position after the appreciation of 10 pips, you would be receiving USD 650,500. Thus, your profit on this trade is USD 500. Still, the difference in pips basically depends on the spread or the difference between the bid price and the ask price. Hence, you might be making more profit or less profit depending on the bid price that you received while initiating the trade and the ask price when you close your position. Positive pips trading brings you profit while negative pips trading results in loss.

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