# Forex what is a pip

You will constantly see ads for "No Commission" trading - and then they promptly boast their low PIP spreads. But do you have any idea what a PIP actually is?

As Forex Trading there are no exchanges, a PIP is a fancy way of charging you an exchange fee, and saying that you don't have any commissions. Just know this - the Forex firms are not non-profit organizations, so one way or another, they are going to make their money. The best thing to know is that a PIP is their take of the money - and be aware of how they're calculated. The below information explains how to calculate point price (PIP):

All currency pairs can be subdivided into three logical groups - pairs with direct quote (EURUSD, GBPUSD), pairs with inverse quote (USDJPY, USDCHF), and cross rates (GBPCHF, EURJPY etc.).

• The pip price for currency pairs with direct quote is calculated according to the following formula [pip] = [lot size] × [tick size] where [tick size] - is the smallest possible change in

price, for example for USDCHF and EURUSD it's 0.0001. For currency pairs with direct quote the pip price is constant.

Example .

EURUSD. Lot size is 100,000, tick - 0.0001. [pip] = 100000 * 0.0001 = \$10.00

• For currency pairs with inverse quote: [pip] = [lot size] × [tick size] / [current quote] For currency pairs with inverse quote the pip price varies depending on the current quote.

Example .

USDJPY. Lot size is 100,000, tick - 0.01. If current quote is 129.20, [pip] = 100000 * 0.01 / 129.20 = \$7.74

• For cross rates: [pip] = [lot size] × [tick size] × [base quote] / [current quote] where [base quote] - the current base pair quote.

Example .

GBPCHF. The lot size is J62500; if the current quote is 2.3000 and the base GBPUSD quote is 1.4550, [pip] = 62500 * 0.0001 * 1.4550 / 2.3000 = \$3.95. http://www.forexknowledge.com/Education/pip.asp forex what is a pip

• Source: www.forexknowledge.com

Category: Forex