To understand why a foreign exchange trader needs a pip calculator, and why a pip calculator is such an important tool in forex trading, you need to know what a pip is.
A pip is the smallest change in price that an exchange rate can make. Since most major currency pairs, like EUR/USD, GBD/USD, USD/CHF, are priced to four decimal places (0.0001), the smallest change would be with regard to the last decimal point. For most currency pairs, this is one basis point or 1/100 of one percent.
Not all currencies trade to the fourth decimal point (for example, JPY/USD is 0.01), and the smallest move in a currency is not always equal to one basis point, but a pip in forex is always the minimum price movement of a currency pair.
Depending on the size of the lot you trade (standard being $100,000; mini $10,000; and micro $1,000), a pip is worth $10, $1 or $0.1, respectively. Thus, if the GBP/USD currency pair went up by 150 pips, and you had traded a mini lot ($10,000), you would make $150.
On the other hand, if you bought EUR/USD at 1.3425 and sold at 1.3415, you be down 10 pips. With one standard lot trade (that’s 100,000 units) at 100:1 leverage (which is called the margin ratio) your dollar loss would have been $100 USD. Don’t really need a pip calculator to figure those transactions out, right?
Okay, but you might appreciate it if your trading account is in USD, and you want to trade EUR/GBP.
The pip value for currency pairs which have a base currency other than that of your trading account currency base can be calculated by converting the second cross rate currency (in this case GBP) into your account base currency (in this case USD).
In order to convert the pip value to cash value, you’ll need to know the price. For indirect currency pairs, per pip values change with market-to-market currency prices, so a pip calculator would probably be a welcome tool right in this situation.
All you have to do to find out your pip value when using a calculator is select the appropriate currency pair, enter the size of the contract and ask price (the opening and closing rates are usually automatically generated), and you’ll get the average pip value, the profit/loss point and the absolute dollar value of the profit or loss.
You can find forex calculators online, and they’re not just pip calculators. There are calculators specific to profit, margin and interest as well, and they’re usually free to use.
Interbank FX (http://www.ibfx.com/tools/pipcalc.aspx) offers information on Forex trading, including a pip calculator. Art Gib is a freelance writer.
