Forex trading involves buying and selling currencies with the aim of making profits. The profit or loss is measured in pips, which is a standardized unit of measurement used in forex trading. A pip is the smallest price movement in a currency pair, and it is usually expressed in four decimal places. For instance, if the EUR/USD moves from 1.2000 to 1.2010, that is a 10 pip movement. In this article, we will explore how to know how many pips you have gained in forex trading.
Step 1: Calculate the Price Change
Before you can calculate the number of pips gained or lost, you need to determine the price change that has occurred in your trade. The price change is simply the difference between the entry price and the exit price of your trade. For example, if you bought the EUR/USD at 1.2000 and sold it at 1.2050, the price change is 50 pips.
Step 2: Determine the Lot Size
The lot size is the amount of currency you are trading. It is usually expressed in standard lots, mini lots, or micro lots. A standard lot is 100,000 units of the base currency, a mini lot is 10,000 units, and a micro lot is 1,000 units. Knowing the lot size is important because it determines the value of each pip. For instance, if you are trading a standard lot of EUR/USD, each pip is worth $10. If you are trading a mini lot, each pip is worth $1, and if you are trading a micro lot, each pip is worth $0.10.
Step 3: Calculate the Pip Value
To calculate the pip value, you need to multiply the lot size by the pip value. For example, if you are trading a standard lot of EUR/USD, and each pip is worth $10, the pip value is $10 x 100,000 = $1,000. If you are trading a mini lot, and each pip is worth $1, the pip value is $1 x 10,000 = $100. If you are trading a micro lot, and each pip is worth $0.10, the pip value is $0.10 x 1,000 = $10.
Step 4: Multiply the Pip Value by the Number of Pips
To calculate the profit or loss in your trade, you need to multiply the pip value by the number of pips gained or lost. If you gained 50 pips in a trade, and you are trading a standard lot of EUR/USD, your profit is $1,000 x 50 = $50,000. If you are trading a mini lot, your profit is $100 x 50 = $5,000. If you are trading a micro lot, your profit is $10 x 50 = $500.
Step 5: Subtract the Cost of the Trade
To determine your net profit or loss, you need to subtract the cost of the trade. The cost of the trade includes the spread, which is the difference between the bid and ask price, and any commissions charged by the broker. For example, if the spread is 2 pips, and you are trading a standard lot of EUR/USD, your cost is $20. If you subtract the cost of the trade from your profit, your net profit is $50,000 – $20 = $49,980.
Conclusion
Calculating the number of pips gained or lost in forex trading is important for measuring your performance and determining your profit or loss. To know how many pips you have gained, you need to calculate the price change, determine the lot size, calculate the pip value, multiply the pip value by the number of pips, and subtract the cost of the trade. By following these steps, you can track your progress and make informed decisions in your forex trading.
