PC, short for Percentage in Points, is a term commonly used in the world of forex trading. It refers to the smallest possible movement in the exchange rate of a currency pair. In other words, it is the minimum amount by which the value of a currency can fluctuate in the forex market. Understanding PC is essential for forex traders as it helps them calculate their profits and losses accurately.
In forex trading, currencies are always traded in pairs. For example, EUR/USD, GBP/USD, USD/JPY, etc. The value of a currency pair is determined by the exchange rate, which is the ratio of the value of one currency to another. For instance, if the EUR/USD exchange rate is 1.1200, it means that one euro is worth 1.1200 US dollars.
PC is expressed in decimal points, and the value of it varies depending on the currency pair being traded. For example, in the EUR/USD currency pair, the PC is typically 0.0001, which is also known as a pip. In contrast, in the USD/JPY currency pair, the PC is 0.01. Therefore, a movement of one pip in the EUR/USD currency pair is equivalent to a movement of $0.0001, while the movement of one pip in the USD/JPY currency pair is equivalent to a movement of ¥0.01.
Calculating profits and losses in forex trading is done in pips, and the value of the pip depends on the position size, which is the number of lots traded. A lot is a standardized unit of currency used in forex trading, and its size varies depending on the broker and the account type. For example, a standard lot is 100,000 units of the base currency, while a mini lot is 10,000 units, and a micro lot is 1,000 units.
To calculate the profit or loss in a trade, forex traders need to multiply the number of pips gained or lost by the value of one pip. For example, if a trader buys one standard lot of the EUR/USD currency pair at 1.1200 and sells it at 1.1210, the trade has gained 10 pips. If the PC of the EUR/USD currency pair is 0.0001, the value of one pip is $10. Therefore, the profit on the trade is $100 (10 pips x $10 per pip).
In contrast, if the trader had sold the EUR/USD currency pair at 1.1200 and bought it back at 1.1190, the trade would have lost 10 pips. In this case, the loss would be $100 (10 pips x $10 per pip). It is crucial to note that the position size also affects the profit and loss calculation. For example, if the trader had bought one mini lot instead of one standard lot, the profit or loss would have been $10 instead of $100.
PC is also essential in risk management in forex trading. Forex traders need to determine their stop-loss and take-profit levels based on the PC of the currency pair being traded. A stop-loss order is an instruction to close a trade automatically if the value of the currency pair moves against the trader beyond a certain point. A take-profit order is an instruction to close a trade automatically if the value of the currency pair reaches a certain level of profit for the trader.
For example, if a trader buys one standard lot of the EUR/USD currency pair at 1.1200 and sets a stop-loss at 1.1180, the stop-loss level is 20 pips away from the entry price. If the PC of the EUR/USD currency pair is 0.0001, the stop-loss level is $20 away from the entry price ($1 x 20 pips x $10 per pip). Therefore, the trader is risking $200 (20 pips x $10 per pip x 1 standard lot) on the trade.
In conclusion, PC is a critical concept in forex trading as it helps traders calculate their profits and losses accurately. Understanding PC also helps in risk management by determining stop-loss and take-profit levels. Forex traders need to be aware of the PC of the currency pairs they are trading and the position size to calculate their profits and losses correctly.
