Foreign exchange will change your life
It is very important to gain knowledge, as the popular saying goes, no knowledge is wasted……….
*TODAY MARKS THE REAL BEGINNING OF YOUR FOREX JOURNEY*
*IF YOU HAVE NOT BEEN FOCUSED BEFORE , PLEASE START FROM TODAY.*
*ALL WHAT WE HAVE BEEN DOING SINCE IS INTRODUCTION, TODAY WE ARE STARTING THE MAIN FOUNDATION*
We are Starting with the Topic
*WHAT IS A PIP*
We’re going to do a little math. Just a little bit
You’ve probably heard of the terms “pips,” “points“, “pipettes,” and “lots” thrown around, we’re going to explain what they are and show you how their values are calculated.
PIP IS THE BEDROCK OF EVERYTHING, I REPEAT EVERYTHING WE ARE GOING TO BE DOING IN FOREX.
If you miss the *Concept of Pips* it means your forex journey already ended before starting, take your time with this information, as it is required knowledge for all forex traders.
Currencies are gauged in pips, Trade orders are placed in pips, Profits are calculated in pips.
Practically everything we are doing in Forex involves Pips.
So take your time to understand this very Important topic.
A PIP is the smallest unit in which a Currency pair can change OR the unit of measurement to express *the change in value between two currencies*
It can also be said to be a standardized unit and the smallest amount by which a currency pair in forex market can change
The English is much...I know, just follow closely
*What is a Pipette?*
There are forex brokers that quote currency pairs beyond the standard *“4 and 2”* decimal places to *“5 and 3”* decimal places.
They are quoting FRACTIONAL PIPS, also called *“points” or “pipettes.”*
If the concept of a “pip” isn’t already confusing enough for the new forex trader, let’s try to make you even more confused and point out that a “point” or “pipette” or “fractional pip” is equal to a “tenth of a pip“.
For instance, if GBP/USD moves from 1.3054*2* to 1.3054*3* that .00001 USD move higher is *ONE PIPETTE.*
Pipette is the 3
The above underlined are all pipettes
Let's now get to how to Calculate *A PIP*
This is where I need maximum concentration from U all
..
If you are distracted before now, please stay focused from now onwards
For most currency pairs in Forex, We start Calculating the pips from the *4th decimal place*
However there are few exceptions..
We will start with the general ones, before we go to the few exceptions
So if EURUSD which is currently at 1.0865
Makes a move of 1 pip
It's new value would become *1.0866*
*...please read again and let it sink*
Let's still have another example
Let's Take a Look at GBPUSD (ie Pounds Vs US Dollars)
Which is Currently at market price of 1.2452 in the image uploaded below
Now if GBPUSD makes a move of 2 pips from that Current value
..
It's new Value would be at 1.2454
Now how do we get this 1.2454??
*We added "2" to the 4th decimal placed number which is "2" and it increased to "4"*
Let's do one more Example...before we go to the main Calculation
Let's take a look at EURGBP, which is at a Current market value of 0.8722 in the image above
If EURGBP makes a move of 5 pips from that value of 0.8722
The New market value would be at 0.8727
How did we get that ??
Once again, we added "5" to the 4th decimal placed number which was "2" and we got "7”
Hence our new value was 0.8727
For the example one we gave where EURUSD moved 1 PIP.
The actual calculation is 0.0001 * 1 = 0.0001
Therefore you add 0.0001 with your calculator to that original value of 1.0865
So we have.
1.0865 + 0.0001 = 1.0866
You see that this method looks longer, though it's the real way of doing it
We still got same answer
In the previous method
We just directly added 1
To the last decimal placed number of that value of 1.0865
And we immediately got 1.0866
Please....don’t forget we’re calculating a PIP and don’t forget what a pip is
Let's see that second example above where GBPUSD moved by 2 pips
Now from that value of *1.2452*
I told that GBPUSD made a move of 2 pips (remember these are just tentative assumptions, just to make the Lectures clearer)
So lets fire on 🚀
What will my answer be if GBPUSD makes a move of 2 pips?
I will simply add 2 to the 4th decimal place of *1.2452*
And I would have my answer as
*1.2454*
For the long method
Since I was told that the Market made a move of 2 pips.
Remember that originally
I told you guys that 1 PIP for a 4 decimal place currency pair is 0.0001
So the move made by GBPUSD is 2 pips
I would have
0.0001 * 2 = 0.0002
I would now add this 0.0002 to the original value of 1.2452
We would now have
1.2452 + 0.0002 = 1.2454
*Same answer* with the above
Very simple to catch....it’s those that don’t want you to have an idea of forex that tells you it’s hard
Assuming we were now told that GBPUSD made a move of *10 pips* from 1.2452
We will as usual add the figure 10 from the 4th placed decimal number and we would have our new value as
*1.2452 >>>> 1.2462*
Let's now see the long method again
*Using the long method*
The move made was *10 pips*
Remember that 1 PIP = 0.0001
So 10 pips would be
0.0001 * 10 = 0.001
(notice the zeros reduced)
So to get the new value of GBPUSD we have
0.001 + 1.2452 = 1.2462
*same answer*
I know someone would ask, Since the shortcut is easy, Why teach us this long method
As we go higher, it gets more complicated especially with numbers that are not round numbers
We will see that soon.
Now for most currency pairs in Forex.... The pip Calculation, starts from the 4th decimal place.
Now there are some currency pairs that are not up to 4 decimal place.
Some of them have specific ways of Calculating them .
Example of those pairs are
JPY pairs
Eg
USDJPY
EURJPY
GBPJPY
AUDJPY
NZDJPY etc
Another popular Example is Gold
ie
XAUUSD
LETS START WITH *JPY PAIRS*
For JPY pairs Eg USDJPY.....
The pips Calculation starts from the 2nd decimal place digit.
If you notice that it's not up to 4 decimal place like others that we did before...
Let's see some examplesI
From that image of USDJPY above... It's currently at *107.23* as pointed at by the arrow
From that Value... If it makes a move of 2 pips.
We started adding "2" to the second decimal place number which is "3" and it increased to "5"
That's how we got *107.25*
The New value would be at *107.25*
How did we get this
We started adding "2" to the second decimal place number which is "3" and it increased to "5"
That's how we got *107.25*
*Let's go to the long method*
*For the Long method, you should take note that *
For JPY pairs
M
1 PIP = 0.01
No longer 0.0001 , like we saw for other general pairs
So Let's use the Long method to Solve the example above...
Remember that for JPY pairs
1 pip equals 0.01
Hence from the above example .01, since it made a move of 2 pips.
We have
0.01 * 2 = 0.02
Adding 0.02 to the Original figure, it would now become
107.23+ 0.02 = 107.25
*same answer* as above
Let's go a little bit higher
Assuming USDJPY made a move of 10 pips from that Value of 107.23
The new value by simply adding 10 from the 2nd decimal place number would be???
*107.33*
*Using the long method*
For JPY pairs 1 PIP = 0.01
Hence 0.01 * 10 = 0.1
Adding 0.1 to the original value we now have
107.23+ 0.1 = 107.33
*same answer*
Let's now get to the last exception which is Gold
By seeing how to Calculate pips on Gold ie XAUUSD
Gold is represented as XAUUSD
Because, if the Chemical Formula for Gold in the periodic table is AU
So some Brokers write it as XAUUSD instead of Gold
I usually Call *Gold* The Boss...
The Volatility is the highest..
It can move 1000 pips on a good day
Only Gold can do that
From Gold pair that I labelled above... The price is currently at 1686.42
....if it makes a move of 2 pips.
The New value would be 1686.62
How did we get this??
As usual using the shortcut method we added "2" to the 1st decimal place number which is the figure "6"
.*read it again and again*
*Let's get to the Long but accurate method*
For Gold 1 pip move = 0.1
Hence for that 2 pip move, we have
0.1 * 2 = 0.2
Adding this 0.2 to the original value of 1686.42
We have
0.2 + 1686.42 = 1686.62
Assuming XAUUSD made a move of 5 pips from that same Value of 1686.42
It would be as follows⬇️
For Gold 1 pip move = 0.1
Hence for that 5 pip move, we have
0.1 * 5 = 0.5
Adding this 0.5 to the original value of 1686.42
We have
0.5 + 1686.42 = 1686.92
