# What is the Pip in Forex Trading ?

The pip is the smallest price change of the exchange rate. For example when trading EUR/USD the smallest price change is 0.0001, for example a move from 1.5231 to 1.5232 is called a 1 pip move. Below you can find the pip definition for the major currency pairs:

### How to Calculate the Profit

The profit of your trade is calculated in the three steps:

**Step 1:** Calculating the Pip Value per Lot

**Step 2:** Calculating Your Profit in Terms of the Quote Currency

**Step 3:** Converting Your Profit to Your Deposit Currency

#### Step 1: Calculating the Pip Value per Lot

The pip value per lot is calculated according to the following formula:

Pip Value per lot = lot size x pip size in units of the quote currency (second currency of the pair)

Below you can find the pip value per lot for the major currency pairs:

#### Step 2: Calculating Your Profit in Terms of the Quote Currency

The profit is calculated according to the following formula:

profit = lot size x pip size x pip value per lot in units of the quote currency

**Example 1:**

Sold 3 lots of EUR/USD at 1.5675 and bought them at 1.5610. In this example, we made 65 pips profit (as we sold at a higher price than we bought). The pip value for EUR/USD is 10 USD, so the total profit = 3 lots x 65 pips x 10 USD pip value per lot = 1,950 US dollars.

**Example 2:**

Bought 2 mini lots of GBP/USD at 1.9170 and sold them at 1.9250: In this example, we made 80 pips profit (as we bought at a lower price than we bought). The pip value for GBP/USD is 10 USD, so the total profit = 0.2 lots x 80 pips x 10 USD pip value per lot = 160 US dollars.

#### Step 3: Converting Your Profit to Your Deposit Currency

Though it is possible to make trades using various currency pairs, the trading result is always written in only one currency – the deposit currency. If the deposit currency is US dollar, profits and losses will be shown in US dollars, if it is euro, they will be, of course, in euros. The most usual is that you run your forex account in the deposit of your country. If you live in US, then you will probably run your account in US dollars. If you live in France, then in euros.

The profit is converted into your deposit currency by using the appropriate exchange rate. For example if your account is in euros and you made a profit of 1,000 USdollars, then you can convert your profit in euros by dividing with the actual exchange rate for EUR/USD.

In the following example we will assume that the deposit currency is US dollars.

**Example 1:**

Sold 5 mini lots of EUR/GBP at 0.7915 and bought them at 0.7815: In this example we made 100 pips. The pip value for EUR/GBP is 10 GBP, so the total profit is 0,5 lots x 100 pips x 10 GBP per pip = 500 British pounds.

The exchange rate of GBP/USD was 1.8500 (for 1 British pound you can get 1.85 US dollars), when the position was closed:

500 British pounds x GBP/USD exchange rate = 500 British pounds x 1.85 US dollars / 1 British pound = $925 US dollars

**Example 2:**

Bought 2 lots of USD/JPY at 105.60 and sold them at 105.20: In this example, we made 40 pips (as we sold at a lower price than we bought). The pip value for USDJPY is 1000 JPY, so the total profit is = 2 lots x 40 pips x 1000 YPJ pip value per lot = 80,000 JPY yen.

The exchange rate of USD/JPY was 105.20 (for 1 US dollar you can get 105.20 JPY yen), when the position was closed. In order to get the amount of dollars we need to divide by the exchange rate.

80,000 JPY yen / USDJPY exchange rate = 80,000 JPY yen x 1 US dollar / 105.20 JPY yen = $760.46 US dollars.

#### Summary Tables

The table is to be used as following: we trade 3 lots AUD/USD, make a profit of 50 pips , our deposit currency is in euros and the actual EURUSD exchange rate is 1.5, then our profit in euros is: 3 lots x 50 pips x 10 US dollars / 1.5 (EUR/USD exchange rate) = 1,000 euros