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Pip - measure of currency price moves
The number of pips usually measures currency price moves. Every pip a currency moves will equal a certain amount of benefit or loss in real USD on every deal. Very often, the value of a pip changes according to what currency pair is being traded. Only if currency pairs comprise the US Dollar is the quote currency and listed second in the pair, will the value of a pip constantly stay at the same level. That happens because it is how much of the base currency you can buy or sell for the USD, which fluctuates.
How can one find out the amount of losing or gaining on a particular trade? He should first set up the value of a pip and then multiply it by the number of pips the currency has changed for or against the position since the trade started. This means that if you foresee that the base currency is going to increase against the quote currency, each pip it goes above the price you bought it at will be counted as benefit; and vice versa, every pip is lower than the price you purchased it and would add to your money loss.
It is important to remember that if the counter currency is USD (e.g. the pair is EUR/USD) the values always remain 1pip = $.0001 USD (1/100th of a cent) for every dollar traded. So it transfers into a value of $10 USD per pip for every usual lot amount of $100000 traded, which is $1 in value for mini lots of $10000. Most other currency pairs will have a pip value that is constantly fluctuating between $.00006 and $.00009 per pip, depending on the current exchange rate. This translates into $6-$9 per pip for every $100000 lot traded, or $.60 - $.90 cents per pip for every $10000 lot traded.
The contract amount, which a bank or brokerage firm lets currency to be traded, is called a "lot." As a rule, brokerages offer two different kinds of accounts: Standard and Mini. A standard lot size is $100000 with mini lot sizes at the amount of $10000. Consequently using 100 to 1 leverage with our trading platform, the broker takes control of a $100000 lot with only $1000 on margin in the account. The smaller lot sizes of $10000 may be managed with only $100 on margin, but the minimum deposit needed for starting an account is $300. Let's look at an example. Suppose a broker purchases the EUR/USD at .8856 as he sees that the currency is underestimated, and the value of the EUR/USD currency reaches .8900. Did the trader gain a profit or came across a loss on the trade, and which one?
If the trader purchased the underestimated EUR/USD at .8856, he bought 100000 Euros (and sold 88560 USD). When the exchange rate reached .8900, the broker was able to sell the 100000 Euros for 89000 USD. As the trader primarily paid $88560, the sum benefit on the deal reaches $89000 (accumulated from selling the EUR/USD at .8900) minus $88560 (primarily paid) or $440 Sum Benefit.
A position becomes an open trade as soon as the broker places an order. Then the trader will either gain profit or lose from changes in the price of this currency pair. If the trader makes his mind to close out this open position to protect a benefit or loss, the currency that was originally sold (short) is bought back and the currency that was primarily bought (long) is sold.
When a long position on the base currency increases in value against the short position on the quote currency a trader gets benefit, if it decreases he takes a loss. One is gaining benefit in a short position when the base currency loses value against the quote currency, and comes across loss when it, on the contrary, goes up.