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What is a pip and what is its value?

By default, all results on this website are displayed in pips. This makes understanding pretty much straightforward. But what is a pip we are referring to?

A pip is the smallest change of a currency pair rate. Now that there are so many currency pairs, different instruments, software applications and brokers, the definition of a pip and its value may be different. However, Signalator uses its classic definition of a pip to represent the results of trading.

As an example, we will use the EUR/USD currency pair rate with 4 and 5 digits with 1.2353 and 1.23531 respectively. If your broker provides a four-digit price, a one pip change will be 0.0001 whilst for a five-digit rate it will be 0.00001. As you can see, the difference is as big as 10 times. The value of a pip is ten times more for the first example compared to the second.

As a general rule, Signalator uses 1 pip value as $1 result if traded with 0.1 lot on currency pairs like EUR / USD or any similar (XXX / USD).

How To Calculate The Value Of A Pip?

To calculate a value of a pip, we have to understand what a pip is in terms of real money. Any currency rate is a ratio of one currency value to another. For example, 1.6357 GBP/USD means 1 Great Britain Pound (GBP) equals 1.6357 United States Dollars (USD). GBP is the first currency, and USD is the second currency within the GBP/USD currency pair. Trading forex is actually buying and selling a certain amount of a currency. You operate with lots (standard, mini and micro lots). The standard lot is 100,000 units of the first currency in a currency pair. Trading through brokers allows you to open 100,000 units (1.0 standard lot) having only $1,000 by means of leverage (1:100 in this case).

The money value of a pip depends on how much you have opened (or how many lots / units you are trading with). Let us assume, we buy (open a position) GBP/USD at 1.6437 with 1.0 standard lot and sell it back (close the position) at 1.6489. The profit in pips will be = 1.6489 - 1.6437 = 0.0052 or 52 pips. In terms of money, the profit will be 52 * $10 = $520. It is derived from the simple calculation: when we buy 1 standard lot, we spend 164,370 USD to buy 100,000 GBP. At the time we sell (close the position), the rate is 1.6489 which means the 100,000 GBP we have, will be converted back to USD and we will receive $164,890. As we paid initially $164,370, the difference is our profit = $520. If we had opened only 0.1 lot the profit would have been only $52.