In the forex business, there are the term namely pips, for beginners, which they are totally new to forex, they will certainly wonder, what are pips? How many dollars is worth 1 pip, this question often arises from beginners.

In this guideline, we will try to explain the meaning of pips, lots, also how to calculate profit, so keep reading while preparing you a cup of coffee.

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## What is pip?

Pip is the smallest point unit to represent price changes in forex trading.

Therefore, the accumulation of profits and losses during the current position following the price movements in forex is calculated in Pip units, or plural, Pips.

One pip point value varies depending on the trading currency pair and the current exchange rate.

So, one pip point in EUR / USD will obviously be different from the value of one pip on USD / JPY.

Example: EUR / USD moves from 1.2250 to 1.2251, that’s 1 pip. Pips are added values of each last decimal number behind a comma.

From the pips value, we will know the profit or loss.

As for the USD / JPY pair, for example, at the price of 119.80 (note that this currency only consists of decimal places behind the comma.

While the other one has 4 decimal places).In the case of this USD / JPY pair, 1 pip is 0.01.

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### How to count a pip?

Before you start counting pips, you must first know the size of the contract in trading.

Because Forex trading is based on certain contract sizes.

Generally, there are three types of contract size:

**Standard contract:**1 lot = 100,000 units. equal to 100,000 USD, if USD is the base currency.**Mini contract**: 1 lot = 10,000 units equal to 10,000 USD, if USD is the base currency.**Micro contract**: 1 lot = 1,000 units equal to 1,000 USD, if USD is the base currency.

If you open an account at a broker, the trader will determine the amount of the contract for trading.

After that, if you are going to trade, then use a lot count.

Whether to buy or sell 1 standard lot, 1 mini lot (0.1 standard lot), or 1 micro lot (0.01 standard lot), or more than that.

Then, if you are going to trade, then use a lot count.

Whether to buy or sell 1 standard lot, 1 mini lot (0.1 standard lot), or 1 micro lot (0.01 standard lot), or more than that.

For example, when we are going to open a buy position in the EUR / USD pair,

We will buy one lot of the base currency for the exchange rate shown by the current price.

For example, currently, EUR / USD shows an exchange rate (exchange rate/price) of 1.05000,

Which means that every 1.05 US dollars can be exchanged for 1 Euro.

In practice, if you buy a standard EUR / USD lot, it is actually worth 100,000 base currencies, multiplied by that rate.

Therefore if 2 micro lots, then that means 2,000 times the exchange rate.

However, even though the capital is in foreign money, the price movements of each currency pair are calculated in Pips.

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### Example of counting pips

USD / JPY currently with a price of 119.80 this pair there are only 2 decimal places behind the decimal point.

In the case of this USD / JPY pair, 1 pip is 0.01. So the calculation is as follows:

USD / JPY:

0.01 divided by the exchange rate

Value pips 0.01 / 119.80 = 0.0000834$

Whereas for pairs with 4 decimal places, 1 pip is 0.0001, for example for USD / CHF and USD / CAD pairs, the calculation is as follows:

USD / CHF:

0.0001 divided by foreign exchange rates

Value pips 0.0001 / 1.5250 = 0.0000655$

USD / CAD:

0.0001 divided by foreign exchange rates

Value pips = 0.0001 / 1.4890 = 0.00006715$

In the case of other pairs where the US Dollar is the quote currency, for example for EUR / USD and GBP / USD pairs, the calculation is as follows:

EUR / USD:

0.0001 divided by foreign exchange rates

Value pips= 0.0001 / 1.2200 = EUR 0.00008196

Then to get the US dollar value, the calculation is as follows:

EUR x Forex rates

0.00008196 x 1.2200 = 0.00009999$ (can be rounded to 0.0001)

For examples of calculation of GBP / USD

GBP / USD:

0.0001 divided by foreign exchange rates.

Value pips = 0.0001 / 1.7975 = GBP 0.0000556

To get a US Dollar value, the calculation is as follows:

GBP x foreign exchange rates.

0.0000556 x 1.7975 = 0.0000998$ (can be rounded to 0.0001)

## What is Lot?

The Forex market is traded in lots. The standard value per lot is $ 100,000, but there is also a mini lot with a value of $ 10,000 and a micro lot that is even worth $ 1,000.

Assumption: $ 100,000 per lot, then the recalculation to know the effect on the pips value is:

USD / JPY with exchange rate of 119.90, then:

(0.01 / 119.90) x $ 100,000 = $ 8.34 per pips

USD / CHF with an exchange rate of 1.4555, then:

(0.0001 / 1.3000) x $ 100,000 = $ 7.69 per pips

But is US Dollar is not the base currency. like as EUR / USD with an exchange rate of 1.1200, hence:

(0.0001 / 1.1200) X EUR 100,000 = 8.33 x 1.1200 = $ 10 per pips

GBP / USD with an exchange rate of 1.9000, then:

(0.0001 / 1.9000) x GBP 100,000 = 5.26 x 1.9000 = $ 10 per pips.

## How to calculate profit/loss?

Example: Buy USDCHF. The quoted rate is 1.4555/ 1.4560. Because we do Open Buy against US Dollars, the value used is 1.4560. Let’s say we buy 1 lot for $ 100,000 at 1.4560.

A few hours later, the price moves to 1.4580 and we decide to close a trade. The new USD / CHF quote rate when closing is 1.4580 / 14585.

Because we closed sell from the previous open buy, the value used is 1.4560. The difference between 1.4560 and 1.4580 is 20 pips. Using the formulation described earlier, then:

(0.0001 / 1.4580) x $ 100,000 = $ 6.85 x 20 pips = $ 137.17

Remember, when entering and exiting or Open and Close Trade, the value of the movement depends on the value of the spread (the difference between the Bid and Ask values).

The calculation above does require calculations that are quite time-consuming. Not to mention the fact that prices continue to change in the Forex market.

Usually in each session market has different average movement of certain pair, with understanding this movement also useful for the trader as a reference before start to the trading.

Therefore if you want to reduce your stress level, use the Pip Calculator. Guaranteed simple, fast and does not make you dizzy.

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## Margin and leverage.

Forex brokers provide facilities called leverage. Leverage is a guaranteed loan scheme, which can increase the purchasing power of property owned by traders.

For example, a broker offers 1: 100 leverage, meaning that a trader with a capital of 10 USD can have a purchasing similar with 1000 USD (from 10×100).

In this case, 10 USD becomes a guarantee fund (Margin) that the trader needs to submit to the broker. This is one of the advantages of forex trading that makes it easy for all of us to trade on the forex market.

Although later the profit will also be adjusted in proportion to the leverage used by traders, at least it is clear that the capital needed by traders to start trying to get money from forex trading is very low.

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