Monday, November 2, 2009

4.2 Forex Calculus : Pip Values

A pip is the smallest price increment that any currency pair
can move in either direction. In the FOREX markets, profits
are calculated in terms of pips first, then dollars second.
                        USD = Quote Currency
                EUR/USD               .0001 USD
                GBP/USD               .0001 USD
               AUD/USD               .0001 USD
                        USD = Base Currency
               USD/JPY                .01 JPY
               USD/CHF               .0001 CHF
               USD/CAD              .0001 CAD
                       Non-USD Cross Rates
               EUR/JPY                .01 JPY
               EUR/CHF               .0001 CHF
               EUR/GBP               .0001 GBP
               GBP/JPY                .01 JPY
               GBP/CHF               .0001 CHF
               CHF/JPY                .01 JPY

Currencies           1 Pip Value Per Full Lot (100,000 units)
EUR/USD           EUR 100,000 x .0001= USD 10.00
GBP/USD           GBP 100,000 x .0001= USD 10.00
AUD/USD          AUD100,000 x .0001= USD 10.00
USD/JPY            USD 100,000 x .01 = JPY 1,000
                                   / USDJPY spot (105.50) = USD 9.47
USD/CHF          USD 100,000 x .0001= CHF 10.00 /
                          USDCHF spot (1.2335) = USD 8.11
USD/CAD         USD 100,000 x .0001= CAD 10.00 /
                          USDCAD spot (1.3148) = USD 7.61
EUR/JPY           EUR 100,000 x .01 = JPY 1,000 /
                          USDJPY spot (105.50) = USD 9.47
EUR/CHF          EUR 100,000 x .0001= CHF 10.00 /
                          USDCHF spot (1.2335) = USD 8.11
EUR/GBP          EUR 100,000 x .0001= CHF 10.00 x
                          GBPUSD spot (1.8890) = USD 5.2
GBP/JPY           GBP 100,000 x .01 = JPY 1,000 /
                          USDJPY spot (105.50) = USD 9.47
GBP/CHF          GBP 100,000 x .0001= CHF 10.00 /
                          USDCHF spot (1.2335) = USD 8.11
CHF/JPY           CHF 100,000 x .01 = JPY 1,000 /
                          USDJPY spot (105.50) = USD 9.47
 Approximate USD values for a one-pip move per contract
in the major currency pairs are shown above, per 100,000
units of the base currency.
On a typical day, actively traded currency pairs like EUR/USD
and USD/JPY can fluctuate 100 pips or more. 
The above table is based upon a margin requirement of 
100 percent (leverage = 1:1). To calculate actual profit (or
loss) in leveraged positions, multiply the pip value per 100k times
the leverage ratio (margin percentage divided by 100).
Note that the EUR/GBP cross rate pair above uses multiplication
with the USD spot price instead of division. 

This is because the USD is the quote (second) currency 
in the spot conversion pair.

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