Pip and Lote (basic steps)

Pip and Lote (basic steps)

Pip and Lote (basic steps)

You've probably heard the PIPS terms and LOT. How are you are the basics of Forex trading every trader must necessarily know, so they can have a certain time. Do not try to think about the operations until well chewed knowledge with the values of the taps and in the calculation of profit and loss!

What is PIPS?

Pip is a unit of measurement that expresses the change in value of one currency in terms of another. If, for example, EUR / USD rises from 1.4500 to 1.4501, increased by one PIP. PIP is the last decimal currency in comparison. As each currency has its own value, it is necessary to calculate the PIP value for each currency in particular.

The currency of the US dollar as the base currency (at first), the calculation is calculated as follows.

For example, the relationship with the USD / JPY at 102.70 (this currency pair has only two decimal places, most of the other currencies have four decimal places) 1 PIP amount to 0.01. Thus, for example:

USD / JPY: 102.70 value divided by the amount of one of the PIP and get the value of a PIP: 0.01 / 102.70 = 0.00009737

This seems like a very long number but later explain LOT, but everything will be clearer.

            In the case where the US dollar is not quoted first (or as the base currency), but we want to get the value of the US dollar we have in the existing case add one more step:

EUR / USD: 1.4500 value divided by the amount of a PIP and get the value of a PIP: 0.0001 / 1.4500 = 0.00006896 euros.

Because we have the euro amount, it is necessary to go back to the US dollar, to do another calculation is needed: Exchange rates EUR 0.00006896 x: x 1.4500 = 0.00009999

When we round would be 0.0001.

All this should not scare, showed him an example of how to calculate! All forex brokers do this automatically but it is always good to know how they do it.

What is a lot?

Lot is a unit used to express the amount of money they have invested in buying or selling a currency pair. In the currency market traded in lots. The standard size for lot 1 is $ 100,000, while the mini account is $ 10,000. As you already know, currencies are measured in the unit of PIP, which is also the lowest rate of foreign exchange. To take advantage of these small changes, you need to trade large amounts in a currency, in order to see significant gains or losses.

Suppose you have an account number with the following value of 1 lot = $ 100,000 and recalculate some examples to see how the value of the tap:

USD / JPY rate at 102.70 (0.01 / 102.70) x $ 100,000 = $ 9.73 per pip

In cases where the US dollar is not quoted first, the formula is slightly different:

EUR / USD at 1.4500 (0.0001 / 1.4500) x 100,000 euros = 6.89 euros = 9.9905 x 1.4500 $ and will round up to $ 10 per pip.

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