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In Forex trading, a PIP is the smallest price increment that can be made by a currency. PIP refers to "percentage in point" and it is very important in Forex as it is the basis for calculating profit and loss and measuring spreads (bid/ask differences).
Usually the value of a PIP is 0.0001, so 100 PIPS equal to 0.01. There is however one exception, which is the Japanese Yen. If Japanese Yen (JPY) is the base or quote currency of a pair then the PIP value becomes 0.01.
"PIPS" function returns the value of N pips for the current currency pair. It returns the value of a pip multiplied by a given number. Obviously, the result is either 0.0001*N or 0.01*N depending on whether the pair symbol contains "JPY" or not.
If you take the most active pair, EUR/USD, and execute the following formula:
a = pips(500);
The variable "a" will get a constant value of $0.05.
You can get the dollar value of a specific number of pips by dividing the amount in dollars by the pip value:
a = $0.05 / pips(1); // Returns 500
Trading System Examples:
If you strategy consists of:
Buying when open price is 50 pips higher than previous close: Set "Buy using market order at the price of ____" and then enter the following formula: open + pips(50)
Using a 100 pips stop loss: Active stop loss (points) and then set the following formula: pips(100)
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
