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Additional funding is provided by the Tiger Baron Foundation and Shailaja and Umesh Nagarkatte. A production of THIRTEEN PRODUCTIONS LLC for WNET. You’ve probably come across these terms already during your investigation into currency trading. It is important to get a good grasp of these concepts before we go any further and explore the math associated with them.

These concepts set the stage for knowledgeable Forex analysis and trading. The Pip Exposed As discussed in previous library articles, a pip is the smallest price change a given exchange rate can make. Your profits and losses can be calculated in terms of how many pips you gained or loss. A pip is derived by comparing the starting rate to the ending rate. The difference between the two is how many pips you gained or lost. Pip Examples Each currency has its own value which is usually expressed in relationship to another currency. Let’s take a look at several of the main currencies to gain a better understanding of how a pip is calculated.

We will express these examples where the USD is quoted first in order to express the value of the pip in terms of U. Well, in the following discussions about lots and leverage you will see how pips can add up quickly. Pip Exceptions There’s one little wrinkle in our pip calculations. What happens when the exchange rate of a currency pair is not expressed to four decimal places? While, this doesn’t happen too frequently there is one notable occurrence which is when the Japanese Yen or JPY is part of the currency pair. JPY pair with an exchange rate of 123.

That seems like a whole bunch of work to calculate such small value. How can I ever make any money in Forex trading with these worthless pips? The answer can be explained by discussing the Forex term of a lot. Spot Forex is traded in lots or groups. 10,000 is considered a mini lot size. 100,000 you will be able to purchase a standard lot size from a broker. EUR at an exchange rate of 1.