Forex trading is the act of buying and selling currencies with the aim of making a profit. One of the most important concepts in forex trading is the pip. A pip is a unit of measurement used to express the change in value between two currencies. It is an acronym that stands for “percentage in point” or “price interest point”. In this article, we will explain how much is 1 pip forex.
What is a pip?
A pip is the smallest unit of measurement in forex trading. It is a standardized unit used to represent the smallest possible change in the exchange rate between two currencies. In most currency pairs, the pip is the fourth decimal place. For example, if the exchange rate between the US dollar and the euro is 1.1200, then the value of a pip is 0.0001.
How much is 1 pip forex?
The value of 1 pip in forex trading depends on the currency pair being traded and the size of the position being taken. In general, the value of a pip is calculated by multiplying the size of the position (in lots) by the pip value of the currency pair. The pip value varies depending on the currency being traded and the exchange rate.
For example, let’s say you are trading the EUR/USD currency pair and you have a position size of 1 lot (100,000 units). The pip value of the EUR/USD pair is $10 for standard lots, $1 for mini lots, and $0.10 for micro lots. So, if you are trading a standard lot, the value of 1 pip is $10. If you are trading a mini lot, the value of 1 pip is $1, and if you are trading a micro lot, the value of 1 pip is $0.10.
To calculate the value of 1 pip for other currency pairs, you can use the following formula:
Pip value = (0.0001 / exchange rate) x position size
For example, if you are trading the GBP/USD currency pair and the exchange rate is 1.3000, and you have a position size of 1 lot, the pip value would be:
Pip value = (0.0001 / 1.3000) x 100,000 = $7.69
So, in this example, the value of 1 pip for the GBP/USD currency pair is $7.69.
Why is knowing the value of 1 pip important?
Knowing the value of 1 pip is important in forex trading because it helps you to calculate your potential profits and losses. It also helps you to determine the appropriate position size for your trades. By understanding the value of 1 pip, you can calculate your risk and reward for each trade and make informed trading decisions.
For example, if you are trading a currency pair with a pip value of $10 and you place a trade with a 50-pip stop loss, your potential loss would be $500 (50 x $10). Similarly, if you place a trade with a 100-pip take profit, your potential profit would be $1,000 (100 x $10).
Conclusion
In conclusion, a pip is a standardized unit of measurement used to express the smallest possible change in the exchange rate between two currencies. The value of 1 pip in forex trading depends on the currency pair being traded and the size of the position being taken. Knowing the value of 1 pip is important in forex trading because it helps you to calculate your potential profits and losses and make informed trading decisions.
