Pips are the most talked about thing in FOREX. ‘PIP’ stands for Price Interest Point or Percentage In Point and is typically the fourth number after the decimal point, unless you are dealing with the JPY, in which case it is the second decimal point. Pips dictate, along with the trade quantity, how much money you are making or losing in the market. Most every transaction measures its success or downfall in terms of pips as well. Pips are paramount in the FOREX market and Apiary Fund reviews their importance because of that throughout their education.
Take profits and stop losses, the key factors in risk management, are set by pips. When executing your strategy, you must calculate where the take profit and stop losses will be by measuring pip distance. You must also know how to find how much a pip will make or lose when you are trading. While for every microlot, 0.01 lots, you trade, the general consensus is you will make $0.1 USD for every pip moved. This is an approximation as a pip will make or lose varying amounts depending on the pair you are trading. While the approximate value will be ten cents, for longer term trades with farther away take profits and stop losses, the can affect the amount of money you make in the end somewhat drastically. The same amount of pips does not equate to the same profits. To find the full value of what the pip will make you, you can find the article in where Apiary Fund reviews the calculation here.
In addition to the movements that make or lose profits, there is the initial loss of a trade. Any time you place a trade, there is the spread, measured in pips, and the trade commission, also measured in pips, are vital to look at while trading. You want to make sure, especially when it comes to shorter term scalping trades that you are able to account for the automatic loss and that stop losses and take profits are adequately positioned, not just for the strategy, but for all the costs incurred per trade. You must be able to add up all the pips that are going to start you negative and adjust your values from there. These factors are important to review. While Apiary Fund does not charge the added commission and has low spreads on its platform, if you are working with a different company or broker, this is an important factor to ask about and look into.
Pips are your basis for trading. While they were previously the smallest changes made in the foreign exchange market, they are not anymore. With all the advancements in trading and technology; points, sometimes called pipettes, are now the smallest change measured. While this is the case, pips still reigns supreme on significance in trading. Regardless of the method and strategy you use to trade, pips will always be a part of it. Knowing how much you make per pip allow you to figure out the rough amount of money you will make based on measured take profits and stop losses.