If you are researching potential investment opportunities in the forex market as a way to more profit or to diversify an investment portfolio, you will probably come across this term, his research, and developing an understanding of the foreign exchange market.
Pip – it is the smallest increment of price fluctuations in the currency. PIP also called "points", and both can be used interchangeably, unless you're talking about FX. Although the most common term for the PIP with the & # 39 is "percentage in point", there is also the assumption that it is the answer of the currency market in the measurement, which can be compared with the correction of the bond traders, which is called the "bps" or "basic points", as measured by the bond market, which is 1/100 of 1% per cent. One Pip, in one USD, equivalent to the fourth decimal place, or 0.0001, or 1 / 1000th dollar.
However, in different currencies that rule is not always applicable, for example, in Japanese yen one equivalent Pip 0.01 yen or second decimal place. If you are wondering why the currency markets traded punch, the answer is quite simple, if the banks and other major forex traders trading millions of dollars, each 0.0001 dollar (USD) is worth ten thousand dollars.
The profit and loss account from the point of view of mathematics is quite simple; it all depends on the size of your position and the number of points that you get, or lose. Pips provide an easy way to calculate the profit and loss account. In simple terms, let us sample the currency pair EUR / USD. Suppose the price of EUR / USD is 1.2841, if the price will rise to 1.2861, it is only 20 points. If the price moves to 1.2811, it just dropped 30 points.
Pips offers a simple way to profit and loss calculations. To convert the example above into account P & L, all you need to know is the size of the position. For example, in the position of 100,000 EUR / USD, the movement 20 pipsav will be equivalent to $ 200 (EUR 100 000 x 0.0020 = $ 200). Positive or negative amounts, depending on whether you are long or short for each step. If you were short, it would be 200 dollars before the "-" (negative) if you are a long time, it would be a "+" (plus).
The good news from the & # 39 is that online Forex trading platforms calculate P & L for you automatically; However, you still need to know how to do it yourself, to structure and manage risk effectively.