Do you remember the first time someone said anything about pips? If you were like me you said what are pips? They might have said it is a unit of measure for when the currency goes up or down. Or you might have heard it is the same as a point in the stock market. Well the official terminology for a forex pip is Price Interest Point.
Each currency pair has its own dollar value depending whether it is the base currency pair or the cross currency pair. The price can range between 50 cents up to about $2.00 at times depending on the currency you are talking about. The prices will change as the value of the price of the currencies in the pair go up and down.
If you want to make more profit per pip moved you just need to add the number of lots you trade. Example: If the value of a pip is $1.00 and you trade one lot the value of the trade goes up and down by $1.00 for every pip moved. If you trade with 3 lots the value you receive or lose from each pip of movement is $3.00.
We feel that going for pips in the beginning is more important than dollars. From the above example you can see that if you get enough pips then it is easy to get more money by just adding to the number of lots you trade with. By thinking in pips rather than money, the emotions a trader feels when trading real money is dampened.
Forex Pip Calculator
Many brokers have what they call pip calculators. When you go to their site you can plug in the numbers and currency pair you are working with and get the dollar value of each pip. You will notice that the pairs that end in the same cross currency pair will have the same pip value. When you place a trade whether it is a buy or a sell you will see that the trade is at a loss as soon as you place it. This is called the spread. The spread can range between 2 and 12 pips depending on the currency and the brokerage you are using.
Hope this helps you keep your pips and lots straight.