What is a Pip Calculator? A Forex Trader’s Guide

Jul 12 • Forex Calculator • 3074 Views • 3 Comments on What is a Pip Calculator? A Forex Trader’s Guide

Every forex trader should take the time to know about the different tools that he can use in his trading activities.  One of these tools is a pip calculator.  In the foreign exchange market, profits and losses are measured in terms of pips.  A pip is the smallest increment by which prices of currencies to be traded can move.  In simple terms, a pip is equal to one basis point or 1 percent of 1 percent — this translates to $0.0001 for the US dollar denomination.  The value of a pip depends on the value of the lot being traded.  For standard lots, this would be at a minimum of $100,000 while mini and micro lots would be at minimum amounts of $10,000 and $1,000 respectively.

Pips can be computed manually as there really is nothing complicated about it once the trader has the values of the currencies and lots being traded.  But, the process can be a lot quicker with an automated pip calculator.  By simply entering the values in the automated tool, it returns the value of the pip for the trader to use in his determining the financial soundness of a particular trade.  As currency values change all the time, an online pip calculator offers the advantage of being able to compute for pip values based on real-time currency values at any given time.  As a planning tool, traders can input projected currency values for a future time and calculate pip values as a way to estimate at what values it would be most profitable for him to trade.

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There is no single “official” website that offers a pip calculator.  The formula for calculating pip values is straightforward and simple enough for any programmer to put in an automated tool that returns values with a click of a button.  These calculators are actually available for free throughout the internet.  A trader simply has to find one that is hooked up to live values where he is trading since currency values can vary, albeit slightly, from one exchange to another.  In general, the most popular valuation used across the globe is that of the London exchange.  Regardless of where in the world a trader is making his transactions, making use of a pip calculator can help him in planning his trades wisely.

As small as pip values might be, they cannot be discounted in a trader’s analysis of his trading activities.  Most gains in the forex market are made in small pips and frequent trades.  Pips are also important in choosing a broker since these brokers get their earnings from the pips or spreads.  In fact, the prospectus of the various online forex brokers includes quotes on pips.  A wise trader would not disregard pips and pip values in his trading activities.  Using a pip calculator in getting all the figures that he needs in order to analyze his trades leaves him with one less calculation to worry about.  Taking the time to find a reliable one to use can save a trader from pushing his figures manually.

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