As a forex trader, it is essential to understand the concept of pips. Pips, short for percentage in points, are the smallest incremental change in the value of a currency pair. They are crucial in determining your profits or losses in forex trading. Therefore, counting pips accurately is crucial to your overall success in the market. In this article, we will discuss how to count pips in forex.
Firstly, it is important to understand the pip value of different currency pairs. The pip value is the amount of money that you gain or lose for every pip movement in the currency pair you are trading. The pip value varies between currency pairs due to the differences in their exchange rates. For example, the pip value of the EUR/USD pair is different from that of the USD/JPY pair. You can find the pip value of a currency pair by using an online pip calculator or by using the formula below:
Pip value = (0.0001 / exchange rate) * lot size
Once you have determined the pip value of the currency pair you are trading, you can then start counting pips. The easiest way to count pips is to use the fourth decimal place in the exchange rate. For example, if the exchange rate for the EUR/USD pair is 1.2345, the fourth decimal place is 5. If the exchange rate changes to 1.2350, the pip movement would be 5 pips. If you are trading a currency pair that has a different pip value, such as the USD/JPY pair, you would count pips up to the second decimal place. For example, if the exchange rate for the USD/JPY pair is 109.45, the second decimal place is 45. If the exchange rate changes to 109.50, the pip movement would be 5 pips.
Another way to count pips is to use the trading platform’s pip counter. Most trading platforms have a pip counter that automatically counts the number of pips gained or lost during a trade. This feature is helpful, especially for beginner traders who may find it challenging to count pips manually.
It is also essential to understand the difference between pips and points. Pips are used in forex trading, while points are used in other financial markets such as stocks and futures. The main difference between pips and points is the decimal place used to denote the value. Pips are denoted using the fourth decimal place in the exchange rate, while points are denoted using the second decimal place.
In conclusion, counting pips accurately is essential in forex trading. It is important to understand the pip value of the currency pair you are trading, use the fourth or second decimal place to count pips, and use the trading platform’s pip counter to ensure accuracy. By mastering the art of counting pips, you can increase your chances of success in forex trading.
