How To Calculate The Benefit Based On The Pip And The Lot

Assume that a buyout transaction was made in the GBP / USD pair at 1.4020 and s’s at 1.4100 gaining a gain of +80 pips. If in that case the transaction would have been a sale the gain would have been -80 pips, meaning that it would have lost money. If you look at the quote price of that pair, you can see at a glance that the minimum variation in price is 0.0001, which will be a pip, so we get the difference 1.41000 (output of the transaction) -1.4020 (Entry of the transaction) = 0.0080, which gives an amount of 80 pips as a profit. If, on the other hand, we perform an operation on a pair with a two-decimal pair, such as the USD / JPY, the minimum change will be 0.01, which would be a pip in that pair. In any case, The value of the pip will be the minimum differential between the price at which the operation is performed. If we take the example GBP / USD of the example above, the value of the pip would be:

-GBP / USD: 0.0001 / 1.4020 = GBP 0.0000713 / pip

On the other hand, if we have a price of 91.30 for the USD / JPY pair, the value of each pip will be as follows:

-USDJPY: 0.01 / 91.30 = 0.0001090 USD / pip

The lot

If you want to get the equivalent of money won or lost with the pips obtained by an operation first of all it is necessary to know the volume of that transaction, ie the number of lots that were traded during the purchase / sale of the currency pair. For example a standard lot is equivalent to 100 000 units of base currency, a minilote to 10 000 units of base currency and a micro lot equals 1 000 units.

To obtain the monetary benefit during the operations in the Forex market we can use the following example:

Assume that a profit of +50 pips has been obtained on an operation with a minilot in the GBP / USD pair. In this case the operation consisted in the opening of a long position at a price of 1.4400 which was closed at 1.4450. The transaction itself was based on the purchase of sterling using the US dollar as the counterpart currency, which were sold at the end of the transaction. The minimum increase that is of a pip has a value of 0.0001 which means that when leaving the operation at 1.4450 the profit per pip is as follows:

Benefit per pip = (0.0001 / 1.4450) * 10,000 (batch size) = 0.6920 GBP / pip

As this example has been bought and sold sterling, the result is precisely in this currency and since the accounts in the brokers are generally in US dollars, another calculation is needed to convert the previously obtained value to that currency as Shows below:

0.6920 GBP / pip x 1.4450 USD / GBP = 0.99994 USD / pip

In this way the operator made a profit of 1 dollar for each pip winning during the operation. In other words the trader gets a profit of \$ 1 per pip when operating minilotes. If a similar calculation is made with batches and microlots, it is known that for the former the benefit is 10 dollars per pip and for the seconds of 0.1 dollars per pip. For that reason if it had been operated with a lot in the previous example the profit would have been of 500 dollars

The above calculations can be used to calculate the pip value and profits obtained regardless of the base currency of the currency pair in which operations are performed.

Now, for those who do not know much about the Forex market, it is necessary to clarify that when operating through an online broker will never have to do these calculations. These are performed automatically on the trading platform, however it is necessary to understand all the data that appears on the platform in such a way that the investor knows what is happening.