A pip calculator is currently one of the most common tools used in Forex or the Foreign Exchange industry today. Pip basically refers to the smallest unit within the trading system. This is a point that characterizes any change in the value of a currency pair. One pip is usually equal to one point but this may vary from one situation to another.
Understanding How Pip Works
It would be hard to use a pip calculator without first understanding exactly how pips work. As already mentioned, one pip is equal to one point. For example, the USD/JPY exchange rate would be 0.01 per one pip. So say a currency’s value moved from 1.800 to 1.805, this suggests that there was a movement of 5 pips.
Now, this amount may also be influenced by the population or the size of the lot currently undergoing trading. The standard lots usually costs around $100,000 while the smallest types are around $10,000. This amount would then help determine the amount per pip. Typically, higher lot sizes mean that the pip is also higher. Some pips fall within the Micro Lot category that could be around $1,000 to $100 in price.
Using the Pip calculator
Using the calculator isn’t really that tough especially since entering values is not necessary. Online calculators would simply connect to the latest data available through the internet and use this to come up with the relevant values. In some cases, the program might require that the user input the current prices of a currency pair in order to arrive at a pip. With newer versions however, this isn’t really necessary. Other information that may be asked for include:
- Position Price
- Ask Price
- Desired Value
- Currency Pair
Computing a pip is not Forex-strategy specific. This means that traders can use the calculator to arrive at usable decisions regardless of the kind of strategy they may be using for their Forex transactions. Since pip deals directly with the most basic element of Foreign Exchange trading, it can be applied to practically any situation.
When it comes right down to it, the use of a pip calculator is an efficient if not essential part of being a successful Forex trader. Although it provides a fairly simple approach to Forex, traders will find themselves getting excellent results from computing the pip of their every transaction. With proper understanding, individuals would have a better idea of how they stand in the market and more importantly – what they should do next. They indicate how much profit or loss a trader might be facing, allowing them to calculate the risk of participating in the trade. With this kind of information, individuals would be at a much better position to make decisions.
What to Remember
Keep in mind that pips aren’t the only important element when it comes to Forex. To be a successful trader, individuals should also be aware of the different factors behind the different transactions in FX. By taking all these into account, traders will stand a better chance of making a killing in the market.