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Chapter 5, Part III. Fractions of the quote rate. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 14, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Commander in Pips: Have you ever thought about pip value? For example, is there some difference between 1 pip rate change of EUR/USD pair, or, for example, USD/CHF pair?

    Pipruit: Hm, I can’t say definitely, but I have some feelings that it isn’t quite the same. I can’t explain it yet, just have a sense. Besides, the term “pip value” is too vague. For example, I can ask “In what currency?​

    Commander in Pips: You are absolutely right. The number of pips is only a half of the job. So let’s check it on an actual example:

    Algorithm for pip value calculation

    1. You should determine in what currency would like to estimate the pip value.

    2. If currency that you’ve chosen for estimation of pip value coincides with quote currency (that comes after the slash”/”) in any pair, then the pip value will be always 0.0001 or 0.01 for JPY!

    For example, the pip value in USD for such pairs as AUD/USD, EUR/USD, GBP/USD, NZD/USD “ANY”/USD will be always 0.0001 or 10$ per each standard lot of 100 000 currency units (100 000* 0.0001).

    So the same is for JPY. If your chosen currency is JPY, then the pip value for USD/JPY, EUR/JPY, GBP/JPY “ANY”/JPY always will be 0.01!

    3. If currency that you’ve chosen for estimation of pip value coincides with Base currency (that stands before slash”/”) in any pair, then the pip value will be always = pip/exchange rate.

    Assume that you would like to calculate pip value in USD/CHF pair and current rate is 1.0782.

    Calculate the pip value in USD: pip/exchange rate or 0.0001/1.0782 = 0.000 092. What does it mean in general? It means that 1 pip value in CHF = 10 CHF per 100 000 units of base currency, or 9.20 USD.

    Pipruit: All right! I think I’ve got it!​

    Commander in Pips: Fine, now it is your turn to calculate. Here is the task for you:
     
    Nachoga and fran alvarez like this.
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