Definition of PIP and how to calculate trade's profit and loss in the forex market

The amount of currency pairs' price changes and trading symbols in the forex market is displayed based on pips.

Pip is one of the most basic and practical concepts traders use in the Forex market. Based on the pip, it is possible to tell the amount of changes in the trading symbols of the forex market. Also, to calculate a transaction's profit and loss amount, you must know the concept of pip correctly.

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What is a pip in forex?

Pip stands for "Price interest point" or "Point in percentage" which means the smallest unit of price changes in the forex market. In fact, traders express the changes in assets and their profit and loss based on pips.

Pip in brokers

For more accuracy in calculations, prices in some brokers are also described with a smaller unit called a Pipette, and one pip is equivalent to 10 pipettes. Accordingly, brokers are divided into four-digit and five-digit categories.

In four-digit brokers, which are often old brokers, price changes of currency pairs are shown up to 4 decimal places, i.e., Pip. For example, the EURUSD currency pair rate is 1.2362. At this rate, the last number on the right is Pip. In five-digit brokers, price changes of currency pairs are shown up to 5 decimal places, i.e., Pipette. For example, the EURUSD currency pair rate is 1.23622. At this rate, the last number on the right is the Pipette.

Usually, the fourth decimal place in currency pairs is known as pip. This issue is valid for both 5-digit and 4-digit broker types. But in currency pairs where one side is the yen (JPY), two digits (in 4-digit brokers) or three digits (in 5-digit brokers) are displayed after the decimal point. In these currency pairs, the pip position is the second digit after the decimal point. For example, when the USDJPY currency pair is traded at 149.765, the second digit after the decimal point in the pip position is 6.

In the picture below, you can see the price of several currency pairs in Trendo Broker. Since Trendo broker is a 5-digit broker, in these symbols, the pip position is marked with purple, and the pipette position is marked with blue.

Pip's position in different symbols

In Trendo Broker, various symbols of the metal market (gold, silver, etc.), cryptocurrencies, the energy sector (oil, gas, etc.), and important stock market indices are presented in addition to currency pairs. The rate change of all these symbols is described based on pip, but the position of pip in these symbols differs from currency pairs.

Read more: Types of financial markets and their trading hours

Pip's position in gold (XAUUSD)

Gold is one of the most popular trading symbols in the forex market. The price of gold is usually described in dollars and up to two decimal places. Suppose the price of gold per ounce is 1930.50. The last digit of the price, i.e., the number zero, is the pip or point, and the number after the decimal point in the pip position is the number 5.

Read more: Factors affecting the price of gold in the global markets and the forex market

Pip's position in Bitcoin

In the bitcoin symbol, the last digit before the decimal point is in the pips position, and the second digit before the decimal point is in the pip position. Suppose the bitcoin price is 30251.70, meaning the number 1 is in the pipette position and the in the pip position is number 5.

Pip’s position in oil (CRUDE OIL)

In the oil symbol (CRUDE OIL), the two digits after the decimal point are in the pip position. For example, if the oil price is $75.83, the number 3 is in the pip position.

Pip's position in the Dow Jones and Nasdaq indices

The pip position in Dow Jones and Nasdaq is the last digit (the number before the decimal), and the first digit after the decimal is in the pip position. Suppose the Dow Jones price is 33,124.56 and the Nasdaq price is at 13,724.56, so number 5 is in the pipette position, and number 4 is in the pip position.

Pip changes calculation in currency pairs

Price changes in the forex market are described based on pips. It is enough to identify only the pip position in the desired symbol and determine the price difference based on it to calculate the pip changes. For example, suppose the USDCAD currency pair is at 1.38021. In this price, the number 2 is the pip position, and the number 1 is the pipette position. After some time, this symbol's price will increase to 1.38521. In this case, it is said that the USDCAD currency pair's price increased by fifty pips or 500 pipettes. As simple as that!

In another example, let's assume that USDJPY is at the price of 149.857, and after some time, this currency pair's price will reach 148.436. In this case, it is said that this currency pair's price has decreased by 142.1 pips or 1421 pipettes.

Profit and loss calculation in a trade

To calculate the profit or loss of a trade, you must multiply the following three parameters:

• Trading volume (Lot)
• Price movement rate based on pip
• Pip value

We talked about the first two parameters previously. However, the calculations of the third parameter are a bit complicated, and if you don't intend to do these calculations, you can refer to the next part, "Forex Calculator" and calculate your profit or loss easily. The pip value depends on the symbol type, trading volume, and rate. To calculate the pip value, you must consider the following situations:

1. The counter currency in the currency pair you intend to trade should be the base currency of your trading account. For example, let's say our account is based on USD, and we want to trade the EURUSD currency pair. In this case, the value of each pip will be $10.

2. The base currency in the currency pair you intend to trade should be the base currency of your trading account. For example, let's say our account is based on USD, and we want to trade the USDCAD currency pair. In this case, the value of each pip will be $10, which you need to divide by the current rate of the currency pair. In this case, the USDJPY currency pair is an exception, and the value of each pip in this symbol is $1000, which you must divide by the current rate of the currency pair.

3. If the currency pairs you intend to trade do not include the base currency of your account, in this case, at the end of the calculations (similar to the first case), you must convert the amount of your profit or loss into dollars at the current rate.

An example of how to calculate profit or loss

For example, let's assume that we have entered into a buy trade in the USDCAD currency pair with a volume of 0.1 lot at 1.35075, and this currency pair has risen by 80 pips. To calculate the trade's profit, we need to multiply 0.1 lot by 80 pips, then multiply the obtained number by $10 (the value of each pip), and finally, divide by the current price (1.35100). Our profit in this trade will be $59.21.

Read More: What is the Lot or trading volume in the forex market?

In the second example, let's say that two traders entered a trade in the EURUSD symbol at Trendo Broker at the same time at the price of 0.09106, and now this currency pair is at the 0.09261 price. In other words, the price has increased by 15.5 pips or 155 pipettes. The first trader has entered a buy trade with a volume of 1 lot, so currently, his trade is $155 in profit. The second trader is also in the buy trade with a volume of 0.1 lot, and his transaction is $15.5 in profit.

What is a forex calculator?

If you are not interested in calculating your profit or loss, you can easily use Trendo's Forex calculator. Just enter the details of your trade, such as trading volume, entry price, and exit price, and click the calculate option to display your potential profit or loss. To use Trendo's Forex calculator, click on the following link:

As shown in the image below, let's say we entered a buy trade in the gold symbol (XAUUSD) at the 2111.53 price with a volume of 0.18 lots, and now gold is trading at the 2118.68 price. Therefore, by entering the trade's parameters in the calculator, the profit of our transaction will be correctly calculated as $128.70.

Summary

In this article, we have reviewed the pip and its position in different symbols and introduced the Trendo Forex calculator for fast calculations of your profit and loss. As a professional trader, you must understand pip properly and how it is calculated, so you can implement risk management correctly. If you still have doubts, you can contact the 24/7 support of Trendo Broker through your trading platform.