## What is Pips in Forex Trading ?

### The actual value of a pip depends on your account capital. For example:

- In a
**standard account of $10,000**, each pip is equivalent to one unit of the currency. So, if your account is denominated in**USD**, as in**EUR/USD**, then**one pip**is worth about**$1**and for every one pip move, you will see $1 of profit or loss on your account.

In a**micro account**, on the other hand, one pip is equivalent to**1/10th**of that of a standard account. So, each**pip**is worth about**$0.10**.

### So, for example:

- If EUR/USD is currently trading at
**1.3123**and then the exchange rate changes to**1.3128**, we say the pair rose by**5 pips**. If EUR/USD depreciated from**1.3123**to**1.3122**, then the pair dropped by**1 pip**, which is**0.0001**of a unit. - If the currency pair of the EUR/USD has the
**bid/ask**rate of**1.3123/1.3127**, then we say there is a**four pip spread**. In the case of currency pairs that involve**Japanese yen**, say,**USD/JPY 115.14/115.17**, we say this quote has a**three pip spread**between the buy and sell prices.

## How to Calculate the Value of a Pip?

### The actual value of a pip varies depending on the size of your trade. For example:

- If your trade is a
**Micro lot of 1k**, you calculate the value of a pip based on**1,000**. - If you want the value of a pip for a
**standard lot**, you start with**10,000**. You then multiply your trade size by one pip for the pair that you are trading. - To calculate the value of a pip for one
**10k lot**of**EUR/USD**, you start with**10,000**. Multiply**10,000 by .0001**gives you a value of**1**.- That will be valued in the
**counter currency**(second currency) of the pair you are trading. - In this example, we are trading
**EUR/USD**, so**USD**is the counter currency of this pair and one pip is worth**1 USD dollar**for one**10k lot**of EUR/USD.

- That will be valued in the
- Therefore, if your account is based in
**US Dollars**, then you will see**$1**of profit or loss on your account for every**1 pip move**that EUR/USD makes. - However, if your account is based in
**British Pounds (GBP)**, you need to**convert that $1 USD into Pounds**.- To do this, divide by the current GBP/USD exchange rate.
- So, let’s say1 British Pound is being exchanged at
**1.54**, then 1 divided by 1.54 gives us**0.64935 Pounds**. That tells us that if you have a British Pound based account, you will see**0.64935 Pounds**of profit or loss for each 1 pip move on one 10k lot of EUR/USD.

- In all pairs involving
**Japanese Yen (JPY)**, a pip is the**1/100th**place – two decimal points instead of four. So, a standard lot of one 10k lot trade for all pairs that involve JPY, a pip is**.01**.

### For a pair of GBP/JPY, the value of one pip is calculated as follows.

- A pip is
**.01**because it is a**JPY pair**.- 10,000 x .01 = 100 That “
**100**” is in terms of the counter currency, so it is 100 Japanese Yen (JPY).

- 10,000 x .01 = 100 That “
- Now you need to convert that
**100 JPY**to the denomination of your account: if you have a**USD**based account, then divide**100 JPY**by the**USD/JPY spot rate**, which at the time of this writing is**78.4680**.- 100 / 78.4680 = 1.2744.
- Therefore, if you are trading
**GBP/JPY**and your account is based in**US Dollars**, you will see**$1.2744 USD**profit or loss for every 1 pip move on one 10k lot of GBP/JPY.

This may all sound a bit complicated but if you do some practice calculations a couple of times, it will become easier to understand.

For more information on PIPS, check out PIPS Explained.

## Long and Short:

A **Long** position means you **buy**, and a **Short** position means **selling**. An **Open position** refers to creating a new trade and a **Close position** means you close an open position.

Take another example: We assume that the value of the **EUR/USD** pair goes **up by one tick** and the quote changed from 1.3425 to 1.3426. Then, we say the size of movement is one pip.

The pip is typically how success of each transaction is measured rather than by the actual dollar amount. So, one pip gain in a $100 account is equal to one pip gain in a $10,000 account although the actual dollar gain differs considerably.

## Lots:

### In general, there are three lot sizes offered by forex brokers: standard lot, mini lot, and micro lot.

- A
**stander**lot usually represents**100,000 units**of the base currency. - A
**mini**lot usually represents**10,000 unit**of the base currency. - A
**micro**lot is typically equal to**1,000 unit**of the base currency. - So, for example, if a trader is
**Long 5 Lots****EURUSD**and his account is a**standard**account, it means that the trader**purchased 500,000 EUR**in exchange for USD.

## What is Spread in Forex ?

The Ask price is always higher than the Bid price but spreads are minimal for most actively traded pairs like EUR/USD, GBP/USD, and USD/JPY, and they are usually around 1-4 pips. Spreads for other currency pairs tend to be higher.