Aditya H. from New Delhi, India: I’m just starting to learn everything about forex particularly with the pip value. How do I calculate this and is there a broker that you recommend?
Hi Aditya and CompariZone readers, to explain this in layman’s term, a pip is basically the smallest movement for a currency pair. It’s the tiniest amount that changes in a forex rate. Let’s set an example, say if the EUR/USD pair changed from 1.2433 to 1.2434 then the movement here is one pip that is equivalent to .0001 since the smallest number here is the fourth number to the right side of the decimal point.
Let’s have another example, say the EUR/JPY pair changed from 147.38 to 147.39. This means that the movement is 1 pip which is equal to .01, the smallest increment of the forex rate.
Now how much is this movement and how is it computed? The standard formula for calculating the pip value is: (Pip movement in decimal value/Forex rate) x (Estimated amount)
The estimated amount is the size of the base currency so in this example we will set it at 1,000 Euros for both the EUR/USD and EUR/JPY pairs.
Following the standard formula, we will get the following:
(.0001/1.2434) x 1,000 EUR = 0.08 EUR or 8 cents per pip for the first example
(.01/147.39) x 1,000 EUR = 0.68 EUR or 68 cents per pip for the second example
And with regards to your question about the broker to recommend, we highly suggest that you try Plus500. It is an online brokerage service specializing primarily in the forex market and is authorized and regulated by the British Financial Conduct Authority so you know that your funds are safe. You may click here to access their website. Your capital is at risk