Pips are one of the most important measurements in forex trading because they indicate how much a currency pair has moved in value. A pip, which stands for “percentage in point,” is typically the fourth decimal place for most currency pairs and the second decimal place for currency pairs involving the Japanese yen (JPY). Knowing how to calculate pips helps traders measure profits, losses, and price movements accurately before entering or exiting trades.
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Understand What a Pip Is
A pip is the standard unit used to measure price changes in the forex market.
For most currency pairs, one pip equals 0.0001, while for JPY pairs, one pip equals 0.01.
- Most currency pairs use four decimal places
- JPY pairs use two decimal places
- Learn the pip value for the pair you are trading
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Identify the Opening and Closing Prices
Determine the price at which you entered the trade and the price at which you exited.
The difference between these two prices is used to calculate the number of pips gained or lost.
- Record the opening price
- Record the closing price
- Use accurate market prices
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Calculate the Price Difference
Subtract the opening price from the closing price.
For example, if you bought EUR/USD at 1.1050 and sold it at 1.1085, then:
Price Difference = 1.1085 − 1.1050 = 0.0035
- Subtract the opening price
- Calculate the price movement
- Record the difference
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Apply the Pip Formula
To calculate the number of pips for most currency pairs, use the following formula:
Pips = (Closing Price − Opening Price) ÷ 0.0001
Using the previous example:
Pips = 0.0035 ÷ 0.0001
Pips = 35
For JPY currency pairs, divide the price difference by 0.01 instead.
- Divide by 0.0001 for most currency pairs
- Divide by 0.01 for JPY pairs
- Record the total number of pips
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Determine Your Profit or Loss
After calculating the number of pips, multiply it by the pip value of your trade size to determine your monetary profit or loss.
The pip value depends on the currency pair traded and the lot size used, such as a standard lot, mini lot, or micro lot.
- Calculate the total pips
- Determine the pip value
- Calculate your profit or loss
Also Read: How to Buy Airtime with a Mr Price Account
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