Knowing the value of an individual pip can be important when you are just learning to trade in the market. You will always have foreign exchange rates provided to you through the broker platform; however, you may not have access to the pip value. The pip value is how much one pip is worth in relation to the foreign currency exchange you are about to do. The thing is you may have your account currency in AUD because you live and work in Australia. Another person might use USD because they live in America. All over the world traders will have a different account currency. To make certain they know the value of their money in the market the pip value can be found. There are a couple of different ways you can find the pip value, which are explored below.
Foreign Exchange Rates Reveal Pip Value through Calculations
Foreign exchange rates are always the basis for calculations. You can keep the calculation written down some where if this will help you determine what each currency pair provides for the pip value. The calculation starts with an understanding of the exchange rate ratio. For example AUD/ USD=.93: you can read this as $1AUD is equal to .93 cents USD. The pip value is then put into the equation .0001 USD x (1AUD/.93 USD). Since you want it in AUD you would take .0001/.93 x1AUD. This would give you the value in AUD.
What if you want the value in USD? All you have to do is another calculation. You take the pip value you found for AUD and divide by 1AUD then you multiply by the current rate. Remember your Algebra when dealing in pip values with foreign exchange rates. The calculation you perform has to cancel out a unit in order to get the unit you want. If you take the pip value for AUD and divide by 1 AUD this cancels out the AUD leaving you with the pip value for USD.
Relieving the Complications of Foreign Exchange Rates and Pip Value
The above calculations sound rather complicated, right? You are sitting here thinking you should have paid more attention in Algebra. Most individuals would think it is another reason many leave the forex market to maths wizards. The truth is you do not need to memorise these calculations or deal with them at all if you do not want to. You can find three alternatives to performing the calculation on your own. These are also timesaving options.
The first is the pip value chart. Some trading platforms through your broker offer these charts. There are also some charts not associated with a broker that you can find for free. Charts can be limited though. You have forex pip value calculators too. You plug in the details it asks for like the account currency and current foreign exchange rates then the calculator does the work for you. The last option is the app. The drawback to technology is most use the major pairs and not some of the cross currency pairs you might want to trade, which is when the above calculations are necessary.