Forex trading involves a lot of technical analysis, and one of the essential tools that traders use is the micro pip. A micro pip, also known as a pipette, is a fraction of a pip that is used to measure the smallest possible price movement in the forex market. It is a crucial concept that traders need to understand to accurately calculate profits and losses in the market.
What is a Pip?
Before we delve into the concept of a micro pip, it is essential to understand what a pip is. A pip, short for “percentage in point”, is the smallest unit of price movement in the forex market. It refers to the fourth decimal place in currency pairs, except for Japanese yen pairs, where it is the second decimal point. For example, if the EUR/USD pair moves from 1.2000 to 1.2001, it has moved one pip.
Pips are used to calculate profits and losses in the forex market. For instance, if a trader buys 10,000 units of EUR/USD at 1.2000 and sells them at 1.2010, they have made a profit of 10 pips. The value of each pip depends on the lot size of the trade, which is the number of units traded. A standard lot is 100,000 units, and each pip is worth $10. A mini lot is 10,000 units, and each pip is worth $1, while a micro lot is 1,000 units, and each pip is worth $0.10.
What is a Micro Pip?
A micro pip, also known as a pipette, is a fraction of a pip that represents a tenth of a pip. It is used to measure the smallest possible price movement in the forex market. For example, if the EUR/USD pair moves from 1.20000 to 1.20001, it has moved one micro pip.
Micro pips are important because they allow traders to make more precise calculations of their profits and losses. For instance, if a trader buys 10,000 units of EUR/USD at 1.20000 and sells them at 1.20010, they have made a profit of 10 pips or 100 micro pips. If they are trading a micro lot, their profit is $1, which is calculated as follows:
Profit = (10 pips x $0.10 per pip) = $1
However, if they are trading a mini lot, their profit is $10, which is calculated as follows:
Profit = (10 pips x $1 per pip) = $10
And if they are trading a standard lot, their profit is $100, which is calculated as follows:
Profit = (10 pips x $10 per pip) = $100
As you can see, understanding the concept of micro pips is crucial in accurately calculating profits and losses in the forex market.
Conclusion
In conclusion, a micro pip is a fraction of a pip that is used to measure the smallest possible price movement in the forex market. It represents a tenth of a pip and is important in calculating profits and losses in forex trading. Traders need to understand the concept of micro pips to make more precise calculations and accurately manage their trades.
