What is a Pip or Point - Trading Terms
How to Calculate Pips in Forex Trading?
As forex is always traded in pairs, so every currency has its own relative value against another currency. Hence the value of pip changes depending upon the pair you trade.
Calculating the total pips and the value of a pip is not crucial to your success, as your broker will automatically figure out the value for you.
However, if you become an advanced trader and want to calculate the profit/loss before placing the actual trade, then the below calculations would be helpful for you.
** In below examples, for ease of calculation we would take exchange rates up to 4 decimal places **
The total count of pips in a forex trade in done by subtracting the initial bid price from the trade closing price.
[See Also:What is Bid-Ask Spread in Forex Trading]
So the Formula to calculate pips in forex trading is as follows:
Total Pips movement = Trade Closing Price - Initial Bid Price
For example, if you have placed an order for buying EUR/USD at 1.2300 and after few hours you closed the trade at a price of 1.2350, then the total pips movement will be 1.2350 - 1.2300 = 50 pips.
Similerly, if yo have placed an short order of GBP/USD at 1.31205 and after few hours you closed the trade at a price of 1.30502, then the total pips movement in this forex trade will be 1.3120 - 1.3050 = 70 pips.
[look!! we are ignoring the pipette at time of calculating pips in forex trading]