It isn’t surprising for new traders to feel confused when encountering the basics of Forex. Although it is somewhat related to stock trading, there are terms and actions that are unique within this industry. Pip and the use of pip calculator is actually one of those. For traders who are already wondering about pip and how it affects their trading strategy, following are the most common questions and their answers.
What does “pip” mean?
Pip stands for “Percentage in Point”
What is it exactly?
It is basically the increment or the rise between a currency pair. For example, USD was bought for 2.2050 in anticipation of it rising. The next day, USD costs 2.2060. The difference between these two values (0.0010) is the pip.
How does this relate with profit?
Pip is important because it denotes that profit of an individual due to their buying and selling process. The 0.0010 is basically the simple representation of the individual’s profit. To get the actual profit amount, the pip must be multiplied with another value, which is the Units Traded. For the sake of example, the Units Traded is at $100,000. The actual money profit is at $100.
Why is this important?
Most people ignore pip due to the simplicity of the approach. However, most people don’t realize just how useful this system is in ultimately becoming an efficient trader. However, that’s not the only reason why using a pip calculator is a good thing. The fact that the pip is not expressly shown in USD makes it easier for individuals to make money decisions. Oftentimes, seeing the actual amount may sway people into changing their minds but this is not the case with using pips.
Is the mentioned formula followed at all times during computation?
No. The formula given was for the sake of a demonstration. There is actually another formula that could have been used. Typically, the types of computation traders can use depend on whether they are buying or selling the money.
What is a pip calculator?
This is basically an online program that makes it easy for individuals to calculate the profits of the trade. It also operates under the same formula given above. The only great thing about the calculator is that it can be accessed online. Hence, individuals can simply enter the value and get results in a matter of minutes. In some cases, the calculator itself gets the data through a website source.
Is the calculator free?
Yes. There are actually numerous providers of this calculator type, all encouraging their services if needed. Those who want to find out the pip of their trade can simply go online and start computing for the values fed on the computer.
Is this completely necessary?
The truth is that there are some traders that managed to make good trades without using a pip calculator. However, having this additional tool does provide more accurate information compared to others. It is suggested that traders use a calculator just to experience a more extensive assessment of the situation.
Of course, those aren’t the only FAQ information individuals might want to know. For a more through presentation of data, it would be a good idea to search online and find other collectors.