Using a pip calculator is fairly common nowadays, as more and more traders understand just how important this is to achieve excellent results with their trading. Prior to understanding exactly what the calculator can do however, individuals need to first understand exactly what pip means and how it relates with Forex trading.
What is Pip?
Pip stands for “percentage in point” and is defined as the smallest increment in the price of currency. To put it simply, it’s the last decimal point between currency pairs. For example, if the USD is at 1.7250 while EUR is at 1.7255 then this translates to 5 pips. In most cases, the pip is set at around 0.0001 especially for USD currency pairs. There are exceptions however like the UST/JPY that only has two decimal points and is therefore set at 0.01.
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Why is this important?
Pip is important because it is directly related to the loss and profit of a trade. An increment in pip basically translates to a profit while a decrease might mean loss. Through simple pip calculation, traders would be able to find out if they are destined win or lose their investment. But most importantly however, it helps traders develop their technique and make sure that the loss doesn’t occur next time.
Most individual today also trade not based on dollars but on the pip. This is because it is easier to plot using this value in relation to the lots a person trades with. For example, if a person simply wants to earn more per pip, they will simply increase the number of lots that they trade. This way, the value of the pip will increase. Say the pip value is set at $1.00. If a person decides to trade 5 lots, then chances are they will lose or profit $5.00 from the transaction.
Pips are also less personal that monetary value. By concentrating on the pip number instead of how much it would actually cost, individuals can remove the emotional element in the trade. This is crucial since emotional trading often results to more loss due to lack of rational thought.
When handled correctly, pip can actually be very useful for Forex trading. Note however that accuracy is vitally important for this, which is why most people utilize a special pip calculator when computing for pip.
Once individuals understand exactly what a pip is and its weigh on Forex trading, it isn’t surprising that most of them avail of a computing tool. The good news is that the calculator is not only available online but also completely free. Hence, individuals wouldn’t have a hard time coming up with the values necessary for their transactions. Calculators often necessitate different values that can be entered manually or through automatic updates.
Of course, it is important to note that pip is not the only important factor when investing at Forex. There are numerous other considerations to take in mind, which is why traders must make sure that they are up to date. By doing this, they will be able to make plans and come up with effective decisions after using the pip calculator.