Pipstep is a term used in forex trading to describe the smallest increment a currency pair can move. It is also known as a pip, which stands for “percentage in point.” Pipstep is an important concept in forex trading as it helps traders to calculate their profits and losses accurately.
In the forex market, currency pairs are traded in units known as lots. A standard lot represents 100,000 units of the base currency, while a mini lot represents 10,000 units, and a micro lot represents 1,000 units. The pipstep is the smallest increment that a currency pair can move, and it is expressed in decimal points.
For example, the pipstep for EUR/USD is 0.0001, which means that the currency pair can move up or down by 0.0001 units. If a trader buys EUR/USD at 1.2000 and the price moves up to 1.2001, the trader has made a profit of one pip. Similarly, if the price moves down to 1.1999, the trader has incurred a loss of one pip.
Understanding pipstep is crucial for forex traders as it helps them to calculate their profits and losses accurately. For instance, if a trader buys one standard lot of EUR/USD at 1.2000 and the price moves up to 1.2010, the trader has made a profit of 10 pips. If the trader closes the trade at 1.2010, the profit would be $1,000 (10 pips x $10 per pip for a standard lot).
On the other hand, if the price moves down to 1.1990, the trader would have incurred a loss of 10 pips. If the trader closes the trade at 1.1990, the loss would be $1,000 (10 pips x $10 per pip for a standard lot). Therefore, understanding pipstep is crucial for forex traders to manage their risk and maximize their profits.
Pipstep is not the same for all currency pairs. Different currency pairs have different pipstep values, and they can also vary depending on the trading platform and the broker. For instance, the pipstep for USD/JPY is 0.01, while the pipstep for GBP/USD is 0.0001.
In addition to pipstep, forex traders also need to be aware of the concept of pipette, which represents the fifth decimal place in the price quote. For example, if the price of EUR/USD is quoted as 1.20005, the pipstep is 0.0001, and the pipette is 0.00005. Pipette is used to calculate fractional pips, which can be important for traders using tight stop-loss orders.
In conclusion, pipstep is a crucial concept in forex trading as it helps traders to calculate their profits and losses accurately. Understanding pipstep for different currency pairs can help traders to manage their risk and maximize their profits. Forex traders should also be aware of pipette, which represents the fifth decimal place in the price quote and is used to calculate fractional pips.
