If I got it correctly, then the value of a pip is Lot Size*10. This value is in the cross currency, so if I traded EUR/USD and made 100 pips, then with a lot size of 0.1 I would have gained $100 and if my account is in euro, then I need to convert it to Euro, which essentially means dividing by the current exchange rate. However, what if I traded EUR/JPY with the exchange rate being well above 100 yen per euro? Doesn't that greatly diminish the value of each pip and hence the value of the profits? If I made 100 pips in EUR/JPY with a lot size of 0.1 (so pip value of 1) I would only have made 100/130 euros (assuming the exchange rate is 1:130)? Did I get something wrong here or am I correct? And if I am correct, why should anyone even consider trading Yen pairs with the Yen as the cross currency (and for that matter any weak currency as cross currency)?
The more you change operations, you are losing capital. I suggest you study the currency in which you are going to operate very well!
Is Google down in your country? https://www.dailyfx.com/forex/education/trading_tips/post_of_the_day/2013/12/31/What_is_a_pip.html
I thought this thru & posted this elsewhere as an fx newbie years back. give him a break guys, he's maybe 23 & everyone starts somewhere. the important thing is that you thought to ask. lots of retail guys don't even think to ask/find out ________________________________________ most articles on position sizing / lot sizing do NOT explain how to factor risk in YOUR LOCAL CURRENCY terms. This is crucial if you want to have a grip on your money management. I've thought it through & will attempt a step-by-step guide on position sizing / lot sizing. Experts, please correct me where I'm wrong. As a "newbie" to FX, all the articles I've read gave me the feeling that the explanations got from a-y BUT stop short of z. The z being how to consider risk in your LOCAL currency terms. Many articles advocate using a max of 2% of your capital so that you can last longer in your trading journey. This is a good thing. But what is not clear is how to size it in your LOCAL currency terms. Some articles will then provide links to position size calculators. But hey, isn't it important to know exactly how to calculate risk since it is MY $ @ risk.. or would you prefer to skip the thinking & depend on some online black-box calculator?? 1) Account size (in your LOCAL currency) = S$10,000 (S$)... the local currency in this eg. is SGD 2) Risk per trade = 2% of capital in your LOCAL currency terms = 0.02 x S$10,000 = S$200 per trade 3) Convert risk per trade from your LOCAL currency terms to the currency you are TRADING eg. if trading EUR/USD, convert to the currency in the direct quote, the USD. EUR/USD = 1.2500 => means EUR1 = USD1.25 the currency NOT quoted in the base of $1 is the currency you want to convert to.. in this example.. USD S$1.2346 = USD1 Risk per trade in USD terms = S$200 / 1.2346 = US$162 4) Determine the number of pips to your stop loss from your entry price eg. buy EUR/USD @ 1.2500 stop loss @ 1.2475 pips to SL = 1.2500 - 1.2475 = 0.0025 OR 25 pips 5) USD risk per pip = USD162 / 25 pips to SL = USD6.48 6) Figure out the smallest tick value for the currency you are trading. eg. EUR/USD is quoted to 4 decimal places.. therefore the smallest tick value (aka 1 pip) is 0.0001 eg. USD/JPY is quoted to 2 decimal places.. therefore the smallest tick value (aka 1 pip) is 0.01 for EUR/USD, if it moves 1 pip, for a... STANDARD lot, your account will move by = 0.0001 x 100,000 = USD10 ....................................................MINI lot = 0.0001 x 10,000 = USD1 .................................................MICRO lot = 0.0001 x 1,000 = USD0.10 ....................................................NANO lot = 0.0001 x 100 = USD0.01 7) Since I want to risk USD6.48 per pip, aka for each pip movement against me, I will lose USD6.48 If I buy 1 standard lot & EUR/USD moves 1 pip against me, I will lose USD10. If I buy 0.648 STANDARD lots, for 1 pip against me, I will lose USD6.48 OR I can buy 6.48 MINI lots, for 1 pip against me, I will lose USD6.48 OR I can buy 64.8 MICRO lots, for 1 pip against me, I will lose USD6.48 OR I can buy 648 NANO lots, for 1 pip against me, I will lose USD6.48 Whether to trade STANDARD, MINI, MICRO or NANO depends on your account type. Is it a pure MICRO lots ONLY account? If yes, trade 64.8 MICRO lots. Is it a flexible account (can trade STANDARD, MINI, MICRO or NANO).. then you can trade either one. Just be sure to key in the correct units. Cheers, eb
Well said. I remember when I first started in a new job years ago and I asked a more experienced Polish colleague a question. I began with "I hope this isn't a stupid question", he stopped me and said "The only stupid question is the one you don't ask". That made a huge difference, and I never hesitated to ask thereafter.
Thank you everybody for your responses. Concerning the JPY pairs I forgot in my line of thought that for them a pip is one hundreth of the current price, not a ten thousandth.
PIP refers to the percentage in point and it is the essential element while you are thinking about trading in any financial market. Forex, a 4 decimal markets so every exchange rate in valued in 4 decimals, and pip is the smallest expression of value changes of an exchange rate. For example: EUR/USD exchange rate is currently 1.9006 and if it increases to 1.9007 the value is changed by 1 pip.