Forex trading is a lucrative business, and to be successful, traders need to understand the concept of points. Points in forex trading refer to the smallest measure of price movements in the forex market. They are essential in determining the profit and loss of a trade.
In forex trading, a point is usually referred to as a pip, which stands for “percentage in point.” It is the fourth decimal place in a currency pair’s price quotation, except for the Japanese yen, which is the second decimal place. For instance, if the EUR/USD currency pair moves from 1.2500 to 1.2501, it has gained one pip.
The value of a pip depends on the currency pair being traded and the size of the trade. The standard size of a forex trade is 100,000 units of the base currency, also known as a lot. However, traders can also trade in mini-lots (10,000 units) or micro-lots (1,000 units).
The value of a pip for a standard lot varies depending on the currency pair being traded. For instance, if a trader buys one standard lot of the EUR/USD currency pair at 1.2500 and sells it at 1.2501, they have made a profit of one pip, which is equivalent to $10. Similarly, if they had bought one standard lot of the USD/JPY currency pair at 110.00 and sold it at 110.01, they would have made a profit of one pip, which is equivalent to ¥1,000.
However, not all traders trade in standard lots. Traders who trade in mini-lots or micro-lots need to calculate the value of a pip based on the lot size. For instance, if a trader buys one mini-lot of the EUR/USD currency pair at 1.2500 and sells it at 1.2501, they have made a profit of one pip, which is equivalent to $1. Similarly, if they had bought one micro-lot of the USD/JPY currency pair at 110.00 and sold it at 110.01, they would have made a profit of one pip, which is equivalent to ¥100.
The value of a pip also varies depending on the currency in which the trading account is denominated. For instance, if a trader’s account is denominated in USD, the value of a pip for the EUR/USD currency pair is $10 for a standard lot, $1 for a mini-lot, and $0.1 for a micro-lot. However, if the trader’s account is denominated in EUR, the value of a pip for the EUR/USD currency pair is €8.41 for a standard lot, €0.84 for a mini-lot, and €0.084 for a micro-lot.
In conclusion, the value of 100 points in forex trading depends on the currency pair being traded, the lot size, and the currency in which the trading account is denominated. As a general rule, one pip is equivalent to $10 for a standard lot, $1 for a mini-lot, and $0.1 for a micro-lot. Therefore, 100 points would be equivalent to $1,000 for a standard lot, $100 for a mini-lot, and $10 for a micro-lot. Traders need to understand the value of a pip and how to calculate it to determine the profit and loss of their trades accurately.
