To understand the currency trading better it’s important to have knowledge about forex pips. Pip can be abbreviated as percentage in point so at times they are also identified as points. The rise or fall in the value of forex trading is being measures in pip. Forex Pips or points are used to make things easier for the traders because it’s not always feasible to calculate the rise and fall in your investments in terms of dollars and cents. This is especially when you are dealing in a currency pairs not involving US dollar. For example if you are trading Euro versus British pounds then it’s tough to express your gains and losses in USD.

Smallest rise in the value of currency is a pip. Let’s say you are trading in EUR versus USD and its current value is 1.5055 and after few seconds of you find its value to be at 1.5056 then its value rose by one pip. So if we continue looking at the EUR versus USD pair then a pip will be $0.0001, this may seem to be pretty low. However even if you are considering a mini forex trading account of $10,000 then one pip would be of $10. If a trader is using leverage offered in the mini trading account and trading with small funds even then with only one lot he/she can earn $10 for every rise in a pip.

On the flip side if we are looking at the currency pair where one currency is USD and other currency is Canadian Dollar (CAD), then CAD is a stronger currency in comparison to USD. So if the current exchange rate is 1.1150 then in this case one pip will be 0.0001 Canadian Dollar. If you wish to convert it to USD you need to divide it by 1.1150 the value of one pip will be equal to 0.0000897. Over here if you are trading in lots of $10,000 then rise in pip would be $8.97 profit for you.

Being a trader you don’t need to calculate your profits and losses every time, since brokers these days offer tools and software which converts your pips in to profits and losses in dollar terms. But sometimes it is helpful to be able to find our dollar value of pips on paper for which you would require to know the formula for the same. One can also store the formula in a spread sheet to find the dollar value of every forex pips this makes calculation simple for any currency pair that you trade in.

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