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## 9 of 37

Lessons Completed

The ‘PIP value’ is the cash equivalent of 1 PIP.

The PIP value is important as it allows you to calculate how much profit or loss will arise with the movement of the market.

To find out the cash equivalent of 1 PIP (PIP value), you must first know what volume you are going to trade (in lots).

Once you know this, simply follow the diagram below to workout the PIP value. For currency’s where JPY is the counter currency, the PIP value is slightly different; Lets look at some examples below of how to use the PIP value diagrams.

EXAMPLE 1

If you are trading EUR:USD the counter currency would be US Dollars (\$).

If you trade 1 mini lot, then the PIP value would be \$1 per PIP.

EXAMPLE 2

If you are trading EUR:GBP – the counter currency would be Great Britain Pounds (£).

If you trade 1 standard lot, then the PIP value would be £10 per PIP.

EXAMPLE 3

If you are trading EUR:JPY – the counter currency would be Japanese Yen (¥).

If you trade 1 micro lot, then the PIP value would be ¥10 per PIP.

To work out how much you would profit (or lose) in cash value with the movement of the market, you must multiply the PIP difference by the PIP value.

Lets take a look at an example of this, below.

EXAMPLE 4

You believe that the European Central Bank (ECB) is on the cusp of raising interest rates.

As a result of this you believe that the Euro will rise in value and decide to open a long position of the EUR:USD.

The current price of  the EUR:USD is ‘1.13200‘, but you believe that the price will rise to ‘1.13570‘.

So, how much will you earn if the price of the EUR:USD does rise to this value?

First off, you must find the PIP difference between these two prices:

#### 1.13570 – 1.13200 = 0.00370 = 37 PIPs (370 fractional PIPs)

Remember, the PIP is calculated by the movement of the fourth digit after the decimal point.

You are planning to open up a position of 1 standard lot, which therefore is equivalent to a PIP value of \$10 per PIP.

Secondly, you must multiply the PIP difference by the PIP value.

Therefore, the potential profit = 37 pips * \$10 USD = \$370 profit

Easy!

BONUS:

After you calculate how much profit (or loss) in a cash value, you would need to convert this value into the value of the currency you set your account up in. So, if you make \$370 and your account is in Pounds (£), you would need to work out how much \$370 is in Pounds, £.

### LESSON SUMMARY:

– The ‘PIP value’ is the cash value of how much 1 PIP costs.

– 1 standard lot (100,000 currency units) = 10 units (counter currency) per PIP.

– 1 mini lot (10,000 currency units) = 1 units (counter currency) per PIP.

– 1 micro lot (1,000 currency units) = 0.10 units (counter currency) per PIP.

^The above values differ if the counter currency is JPY.

– To work out how much you would profit (or lose) in cash value with the movement of the market, you must multiply the PIP difference by the PIP value.

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