Forex: How To Calculate The Value Of A Pip (Beginners Must Learn This First)

"for instance if you buy the euro dollar and the price of the euro dollar goes up 20 pips how much money did you make"

"if you said I have no idea to those two questions then today we're going to fix that because being able to calculate the value of each individual pip is how we determine what we're gonna lose and what we're gonna make own every trade we place"

"and without it you are bound to make tons of mistakes ended up going down the path of the 90% of traders that lose their accounts or either quit trading"

"the value of a pip depends highly on the amount of currency you're trading what that means is the amount of units that you're trading"

"and these units normally come in for major lot sizes for major sizes so if you're trading units of currency that what you want to what you want to actually look at and I'm gonna do a graph for this is the lot size in order to come up with the amount of value per pip the amount of value each pip is worth it depends on your trading lot size or the amount of units that you're trading"

"the name of the first size that is very common is a standard lot so we're gonna label this s L that stands for a standard lot now if you're trading a standard lot that means you're trading 100,000 units of currency so if we're trading 100,000 units of currency on any pair that ends in USD then this is the exact value per pip if you have one standard lot that you're trading or if you're trading every hundred thousand units you're trading you are trading at a value of ten dollars per pip"

"so if you're trading a standard lot on the euro dollar that means that every pip is ten dollars every pip that it moves is ten dollars"

"the second one is called a mini lot a mini lot means that you're controlling or holding 10,000 units of a certain currency and with this being the case with 10,000 units of a currency you have a value per pip of $1"

"so for every 10,000 units of a currency that you hold there is a value of $1 per pip that's exactly right on dollar pairs it's a generalization that is very similar on other pairs as well"

"and the last lot we're gonna take a look at is the micro lot the micro lot means you're controlling 1,000 units of a certain currency and that means that you are losing or gaining ten cents per pip"

"so every pip that the market moves is going to be ten cents up or down in your account if you're trading a micro lot"

"and the last one that we're gonna take a look at that we're not gonna dive deep into it all is called a nano lot a nano lot means that you're controlling 100 units of currency and every movement of a pip is worth a penny the value per pip is a penny"

"if you bought the euro dollar and you are at 1.0 802 and it went to 1.0 9:02 if you were trading a standard lot and this happened how much would you gain on that position how much money is that actually worse and that's what we're gonna determine and talk about up next"

"so let's move into this on the euro dollar trade here if we have the euro dollar at 1.0 802 we trade one standard lot a hundred thousand units of this currency and we do so at one point Oh 802 and this market moves to 1.0 902 going up we bought we wanted the market to go up and we take profit at 1.0 902 how much money did we makes if you can calculate how much money we made based on this trade remember a standard lot is 100,000 units of currency and with that 100,000 units of currency on any pairs ending in USD we're making and losing exactly 10 dollars the value of a bib is exactly ten dollars"

"so let me share with you the equation you need to figure this out what you need first is the amount of pips so we're gonna look at the amount of pips which is 100 we went up 100 pips in this particular case right so we have 100 pips times the amount or the value per pip in this situation based on your lot size so if we used a standard lot of 100,000 units and we know that a standard lot on the euro dollar is equal to ten dollars per pip then we would have our amount of pips times ten dollars per pip because we're using a standard lot and that we have to multiply by the amount of standard Lots in this case we just traded one standard lot so with this being the case how much money did we make on this 100 pip move on the euro dollar well the money would translate to one hundred times ten because we're using a standard lot and with a standard lot we are making and losing ten dollars per pip the value per pip is ten dollars we only traded one standard lot so therefore one hundred times ten is one thousand dollars is what you made or what we would have made on this 100 pip move out of the euro dollar"

"now let's change things up for a second and say we wanted to trade three standard Lots in this case what would change what number in the equation but we need to change if this was the case and we were trading three standard Lots instead of one well that was the case we would have to change the third number in this equation we still have a 100 pip move right pips is right here we still are trading standard Lots so standard lot is right here now we need number of Lots so what's the number of Lots when we're trading three so that would mean that this 100 pip move if you were trading three standard Lots would equal a three thousand dollar gain"

"so let's move back to placing a buy order with one standard lot on the euro dollar if you're doing this essentially you are telling your broker that you are going to won't 100,000 euros not 1 million euros what am i doing 100,000 euros so if you're gonna purchase 100,000 euros your brokerage is going to charge you the exchange rate that the market it currently has which is 1.0 802 100,000 times 1.0 802 would be they will charge you one hundred and eight thousand and two dollars so that's what you're being charged to get one hundred thousand euros your Dro ker gives you that one hundred thousand euros they get one hundred and eight thousand and two dollars from you from your account then you are holding that one hundred thousand euros waiting on the market to either rise or fall waiting on the Eurodollar day the rise or fall in this case you bought the euros and the market went up from 108 o - to 109 o - meaning that you still have the same 100 thousand euros that you are holding but now instead of them having a value of 108 thousand and two dollars they now have a value because of the difference in the exchange rate the exchange rate has went up they now have a value of 109 thousand and two dollars and that's where you're getting that one thousand dollars if you're trading a standard lot"

"we'll keep the math easy with a 100 pip move except now instead of trading one standard lot we're going to assume that you we do a little bit of a difficult thing here a little more difficult as we go let's assume you want to trade - mini Lots so you're trading - mini Lots and do you remember what a mini is a mini is you holding 10,000 units of currency so if you're trading to minis you're holding 20,000 units of currency a mini is worth $1 per pip meaning the value of a pip if you're trading a mini lot is $1 so in this case the market goes up by 100 pips so our equation would still be pips would be 100 time's the value per mini lot per pip when you're trading a mini lot which is $1 times the amount of mini Lots you're trading which is - meaning that you're your profit on this trade if you were trading a mini lot would be 100 times 1 which is 100 times 2 which is the amount of mini lot you're trading so you would have a profit of $200 on this particular trade"

"what you are saying is broker I want 20,000 euros and they are going to Matt that's gonna be a little more difficult here hold on they're going to charge you let's bring a calculator over 11.0 802 Thoms 20,000 when they do that they're gonna be charging you twenty one thousand six hundred and four dollars so when they're charging you twenty one thousand six hundred and four dollars you're holding 20,000 units of euro so while you hold that 20,000 units Bureau just as in our last example the euro goes up a hundred pips so you still have that same twenty thousand euros except now you have to multiply that twenty thousand units that you're holding times the new exchange rate of 1.0 9:02 which means when you give them that twenty thousand units back they owe you twenty one thousand eight hundred and four dollars giving you that two hundred dollar profit"

"now let's go through this last example first on a micro lot so let's say you want to trade one micro lot and you're doing that while them you buy that one micro a lot the markets at 1.0 802 just as with the other examples we go up 100 pips what's our equation look like what we have to do our 100 pips times 10 cents times the amount of microbots we're trading which in this case is 1 what is that equal that means that you would have made $10 on this 100 pip move trading one micro lot"

"so you're telling your broker I want 1,000 units of the euro and they're telling you if you want 1,000 units of the euro we're gonna charge you one thousand and eighty dollars and then you say okay I'm fine with that you exchange it you hold that one thousand euros until the price rises by a hundred pips and when it does you were saying one thousand euros is now worth one thousand and ninety dollars because of that rise in price"

"I actually trade based on a certain percentage of my account value so the the lot size is always a random number and that's an extremely simple thing to do if you have the right platform"

"the reason is because of risk management you want to understand that so that you can know how much of your account you're risking per trade whatever your stop-loss is and and also how much you can make per trade but the more important part of this equation is how much you can lose"

"the way I use risk management and calculate the value per pip is a lot different than what I just showed you because my brokerage as we've discussed in the beginning and my platform allow me to trade completely random unit sizes"

"I want to place a trade let's say I wanted to buy the Europe the New Zealand dollar right now which is the currency pair where home I would go to create a new order I would have a market order in and I would set my stop loss and let's do this first let's go ahead and do say I want to buy the New Zealand dollar right now I want to have a stop loss below this red candle so that's my stop loss and I have a target at a two-to-one risk reward so if this is the case I now have my trade setup so what I'll do is go to trade create new order it's gonna be a buy order on the New Zealand dollar and I know where my stop-loss is it's at 100 pips so 100 pips is my stop-loss"

"the certain risk for me is between 1 and 2% so for me the easy way that I do this is I go here to trading view I place my order and I put in what amount of risk I want to use as you can see right here on the order form it says percent risk when I put in 2% risk you can see that it shows me the size and units that I'm actually purchasing and this number is completely random again"

"some brokerages may only allow you to place trades based on standard Lots in that case you would need to trade to standard Lots and it would be completely different for you but for the way I trade for my brokerage and my platform I'm allowed to trade based on a certain percentage of my account value which is what I like to do for every trade I place therefore the lesson we just went over it's kind of irrelevant for me at this point in my trading considering the technology that I use here over on the trading view platform"

"if you're trading a standard lot on the euro dollar that means that every pip is ten dollars"

"a mini lot means that you're controlling or holding 10,000 units of a certain currency and with this being the case with 10,000 units of a currency you have a value per pip of $1"

"the micro lot means you're controlling 1,000 units of a certain currency and that means that you are losing or gaining ten cents per pip"

"a nano lot means that you're controlling 100 units of currency and every movement of a pip is worth a penny"

"well the money would translate to one hundred times ten because we're using a standard lot and with a standard lot we are making and losing ten dollars per pip the value per pip is ten dollars we only traded one standard lot so therefore one hundred times ten is one thousand dollars is what you made or what we would have made on this 100 pip move out of the euro dollar"

"if you were trading three standard Lots instead of one well that was the case we would have to change the third number in this equation ... this 100 pip move if you were trading three standard Lots would equal a three thousand dollar gain"

"the market goes up by 100 pips so our equation would still be pips would be 100 times the value per mini lot per pip when you're trading a mini lot which is $1 times the amount of mini Lots you're trading which is - meaning that you're your profit on this trade if you were trading a mini lot would be 100 times 1 which is 100 times 2 which is the amount of mini lot you're trading so you would have a profit of $200 on this particular trade"

"our 100 pips times 10 cents times the amount of microbots we're trading which in this case is 1 what is that equal that means that you would have made $10 on this 100 pip move trading one micro lot"

"the reason we want to understand the value of the pip is because we want to understand how much we're risking on each trade"

"the certain risk for me is between 1 and 2% so for me the easy way that I do this is I go here to trading view I place my order and I put in what amount of risk I want to use as you can see right here on the order form it says percent risk when I put in 2% risk you can see that it shows me the size and units that I'm actually purchasing"