Pip is referred to as a percentage in point. It is the smallest unit of measurement used in forex trading to measure the movement of changing values between two currencies. The majority of the currencies define pip at the fourth decimal place except for some like Japanese yen pairs which are defined at two decimal places. Because the yen is not a very valuable currency compared to others.
For example, 0.0001 is used for EUR/USD but 0.01 is used for USD/JPY.
If the EUR/USD pairs move from 1.1125 to 1.1126 and for Japanese yen (JPY) the USD/JPY pair moves from 144.04 to 144.05 it is called one pip has moved.
Calculation of Pip Value
Every currency has its own specific value so it is important to calculate the pip value of the particular currency pair.
When USD is the first pair or base currency like the USD/CAD pair, the pip value is involved in that exchange rate, and one pip value is calculated by the below equation.
Pip Value = (Pip Size ÷ Exchange Rate) Trade Value
If the USD is the second pair or quote currency like the EUR/USD pair then the pip value is set at 0.0001. Here, the one pip value is calculated by multiplying the traded value with 0.0001.
Pip Value = Quote Currency Pip × Value Traded
There are many benefits of knowing about pip values like it will help the traders with making a decision based on their account balance, it reduces risks in trading, traders can know about accurate profit, etc.
Also Read: The Different Types of Forex Charts
Conclusion
In forex trading, pip value is the most important factor because it is associated with minor changes in currency trading. Understanding it will allow you to do effective trading in the currency market. So, know the fundamental information about pip value from TheBrokersReview and make your forex trading more effective.
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