09 June 2012

Pip Cost

Hello ,

Many people have been asking about the value per pip when trading micro lots.

The value of a pip is determined by the pair of currencies being traded, the rate at which the currency pair is trading and the size of the position being traded.

Remember a micro lot is 1k in currency traded. This is opposed to a 10k mini or 100k standard lot.

The following currency pairs (where the USD is the quoted currency) have a fixed value of $0.10 per pip per micro lot: EUR/USD, GBP/USD, AUD/USD, NZD/USD.

To calculate the value of other pairs, which have a fluctuating pip value you can apply a simple calculation such as the example below.

Lets say you are trading the euro at 1.3500 for one micro lot.

When the exchange rate moves from 1.3500 to 1.3501, the value of your 1,000 Euro position has increased from $1,350 USD to $1,350.10. Pip value = $0.10.

That means if you trade a 10k lot that means you would earn $1 a pip.
.10 (per micro) x 10 = $1

K in general means 1 thousand (1 000).

1 micro lot = 1K = 1 000 units of currency,

For example if you are buying 1K (1 micro lot) of EUR/USD at $1.2000 you are buying 1 000 Euros with 1 200 US dollars.

If you are buying 10K (1 mini lot) of EUR/USD at $1.2000 you are buying 10 000 Euros with 12 000 US dollars.

If you are buying 100K (1 standard lot) of EUR/USD at $1.2000 you are buying 100 000 Euros with 120 000 US dollars.

Simplest way to understand how to calculate pip depends upon the currency pair involves. We start considering the situation when the US dollar is the quote currency as in the case of JPY/USD, GBP/USD or CHF/USD. Here calculating pip is very easy as pip has always a value of $10. As a standard Inter Bank lot size is 100000 and the pip is usually 0.01% hence the value of the pip comes to $10. So, while trading JPY/USD the market moves in your favor by 10 pips that mean you make a profit of $100.

If you want further clarification on pips you can check my blog

pips and stops micro

I think I understand the fractional pip concept and the bid/ask--buy/sell --spread that determines where you will be exiting BUT
I'm having issues with the distance the stop order is requiring.

For example, a sell price is .63799 and the spread is 2.5
I want to set a stop at .63845 --which is 4.6 pips, correct? but it won't allow a stop below .63851, which is 5.2 pips.
Since the stop I want to set is greater than the spread, why won't it allow it?

Is there a rationale to explain this?

Quote Originally Posted by knotgreedy View Post
I just opened a micro and then watched a tutoial that said a 10K lot will cost $25.00 to execute /close. Is this right? . I never saw this charge during my demo acct. Could one of you veterans explain this. Thanks
You may be misinterpreting margin as a cost. When you open one microlot, which is 1,000 of the currency you are trading, you need at least $2.50 in your account as margin to control the position. If you open 10 microlots or 10,000 of the currency you are trading, you need $25 in margin money to control the position. Here is more:

Margins and Leverage Explained | FXCM Micro Lot Spread and Margin
Enroll in our online DailyFX Course today and get personalized instruction from our team of expert traders 24 hours a day. We have taught over 25,000 students and in our online courses in the past. The new DailyFX Course has nearly 600 minutes of content delivered via video so you can learn at your own pace. Join the instructors in live webinars where they will show you how to use the highlighted tool in current market conditions. Click here to get more information.

No comments:

My Blog List

Total Pageviews

Search This Blog