In forex trading, price movements are measured in pips. In nearly all currency pairs, the pip is the number that is four decimal places (.0001) into the price of a currency pair, except for Japanese yen currency pairs, where the pip is measured by the second decimal (.01). In this article we will review how to compute both the pips profited or lost in a trade, and how to calculate the dollar value of a trade.
Instructions:
1) Subtract the sell price from the buy price. This will give you the total trade profit or loss in pips. For example you buy the EUR/USD at 1.4675 and sell it at 1.4792. Therefore 1.4792 -1.4675 = .0117 and this equals 117 pips. For a Japanese yen pair, an example would be to buy the GBP/JPY at 145.50 and sell it at 143.75. This would lead to 143.75 - 145.50 = -1.75, and therefore a loss of 175 pips.
2) Calculate the dollar amount per pip. If the USD is the counter currency, then every 1 pip equals $.0001. If the counter currency isn't in U.S. dollars, you need to multiply .0001 by the counter currency's worth in dollars. For Example, the EUR/GBP is the currency pair of the euro and the Great Britain pound. The GBP is the counter currency. So if the GBP/USD is trading at 1.6600, then you multiply 1.6600 by .0001 to calculate the dollar amount per pip of the EUR/GBP.
3) Multiply dollars per pip to position size. For example if the GBP/USD is trading at 1.6600, then 25,000 EUR/GBP equals $4.15 per pip (25,000 * 1.6600)
4) Multiply profit or loss in pips by $ amount per pip , to calculate the profit or loss of a trade in dollars. Use the example from step 3: 25,000 EUR/GBP and a profit of 33 pips. This will calculate as $4.15 * 33 = $136.95
Tips and Warnings:
Forex is traded in currency pairs: the first symbol is the base currency and the second one is the counter currency. A forex price will list one unit of the base currency in units of the counter currency.Therefore a quote of EUR/USD at 1.5000 means one euro equals 1.5000 U.S. dollars. And USD/JPY 90.50 means one U.S. dollar is equal to 90.50 Japanese yen. Use Yahoo Finance to find real-time currency prices for calculating dollar amount per pip.
Source - eBay
