How to easily calculate the value of a Forex pip, calculator and formula
The cost of one Forex point plays a rather large role when choosing the correct volume of transactions; the trader must accurately understand how stable his position is to the trend and what price surges he can easily withstand.
It is this concept that is the basis of some trading strategies and allows you to set a certain amount of profitability of transactions.
The Forex point is equal to the last digit in the quote of a currency pair, its specific value depends on the volume of the transaction, the calculation is made in the quoted currency in the currency pair.
With a two-digit quote it is 0.01, with a three-digit quote it is 0.001, and with a four-digit quote it is 0.0001, respectively.
Now the most popular five-digit quote, in this case you should also focus on the last digit, as shown in the photo.
Specific examples will help you understand this concept more clearly.
Accordingly, when volumes change, the cost of one point also changes; if a transaction with a volume of 0.1 lot is made, then the Forex point will in this case be equal to only 1 dollar.
A separate discussion when working with five-digit quotes, here the indicator decreases tenfold and a movement of one point can already correspond to 1 dollar, although the transaction was made in the volume of one lot.
Brokers often use a five-digit quote in the trading platform, but prefer to indicate this indicator as the size of the spread in the 4th digit, in order to visually reduce the amount of the charged commission. This point should be taken into account when comparing commissions from different brokers.
trading on cent accounts has its own peculiarity: in this case, so-called micro lots are used, 100 micro lots equals 1 standard lot or is 0.01. You should get used to this feature after working on a demo account.
In the case of cent accounts, the cost of one point will also decrease by 100 times, and if we take the same currency pair EUR/USD, then when trading 1 micro lot and a five-digit quote, 1 point will be equal to 0.01 dollars or, more simply, 1 cent.
The cost of one Forex point for any of the currency pairs.
In order to calculate the cost of a forex point in any currency pair, you need to use a simple formula.
For pairs in which the base currency is the US dollar 100,000 x RP / K where,
RP – point size depending on the number of characters in the quote.
K – the currency quote itself.
For example, the cost of a point in USD/JPY at a rate of 78.41 will be:
100,000x0.01/78.41 = $12.75.
If we consider the example in relative figures, then to purchase one lot in dollars we will need 7,841,000 yen, the rate changes to 78.41 or one point, we have 7,842,000 per 1,000 yen, as a result this is still the same 12, US$75.
More complex is the calculation for cross currencies, for example, EUR/CHF, at the rate of 1.2015, that is, to purchase this lot we will need 120,150, which means one point, in this case equals 10 Swiss francs.
We find the cross rate of the Swiss franc to the American dollar, let it be 1.0470 and get the cost of this forex point in EUR/CHF - 1.04 US dollars.
Typically, such calculations need to be carried out only for theoretical work, in the trader’s terminal, all values are automatically converted into the currency of your account. For example, if you open a 0.1 lot trade on USD/JPY with a spread of 2 pips, you will immediately see a loss of $2.55.
Currently, there is no need to independently calculate this parameter; for these purposes, you can use a trader’s calculator - this tool will do everything for you, and for several currency pairs at once.
The cost of a Forex point directly depends on the volume of your trading and the instrument on which trading is carried out; you should also not forget about the number of characters in the quote.