In this article you will learn more about the Pip Value Calculator and the Indicator for Metatrader that makes it easy to see on chart.
What Is The Pip Value
Trading CFD
When trading Contracts For Difference (CFDs) it is not always easy to understand the value of the price fluctuation.
Retail traders normally trade the following instruments via CFDs:
- Forex
- Metals
- Indices
- Commodities
- Cryptocurrencies
This is especially true when trading via the popular trading platform Metatrader.
Trading via CFD makes it really easy to retail traders to get access to assets normally traded by institutions.
One thing that must be clear that CFDs are instruments that follow the price of the underlying asset without actually settling on the the underlying asset.
For example when you trade long or short EURUSD you are only “betting” on the price going up or down, without actually buying or selling the currency.
The same way, if you are going long or short on Gold or Petrol, you are only trying to profit from the price movement, without buying or selling the asset.
If trading via CFD is clear we can move forward.
Pip VS Point VS Tick
Now that you understand what is a CFD we can continue with the definition of Pip, Point and Tick.
Pip is the traditional way of quantifying the price movement of an asset and traditionally it was the last decimal of the exchange rate of the currencies.
Years ago brokers quoted currencies with either 2 or 4 decimals, see for example USDJPY 102.39 or EURUSD 1.1995.
In these cases 1 Pip corresponded to the last decimals of the exchange rate, so 0.01 for USDJPY and 0.0001 for EURUSD.
Traders used, and some still do, to quantify the price change of the assets in Pips.
Saying the price dropped 20 pips meant that the exchange rate dropped 0.20 for currency pairs quoted with 2 decimals like USDJPY. The same way it meant pairs quoted with 4 decimals dropped 0.0020.
Nowadays, with the evolution of technology and the increased competition between brokers, most brokers have increased the number of decimals in the exchange rates.
Changing the number of decimals in the rates also caused confusion in the expression and calculation of “Pip”.
When trading using the Metatrader platform it is therefore important to understand the concepts of Point and Tick.
Point and Tick are normally the same thing in Metatrader.
Point, or Tick, is the smallest change an exchange rate can have. In other word, it is one unit of the last decimal in the rate of a CFD.
Using the same example as before, you will find that most brokers quote USDJPY with 3 decimals, i.e. 112.993, in this case 1 Point, or Tick, is 0.001.
EURUSD, and many other pairs, are quoted with 5 decimals, like 1.00934, in this case 1 Point (or Tick) is equal to 0.00001.
In most cases, but not all cases, 1 pip is equal to 10 points (or 10 ticks).
What Are Pips And Points Used For?
Now that you understand what is a Pip and a Point (or Tick) you may ask yourself, what do I do with them?
You can use Pips and Points for a few things, including:
- Quantifying a rate change, i.e. quote has increased or decreased 10 pips, or 100 points
- Express a stop loss or a take profit distance, i.e. Stop Loss is 250 points from the open price
- Understand the monetary value of price fluctuations, i.e. a change of 300 points means a loss, or a profit, of a certain amount of your equity
As you can see being familiar with the concepts of Pip and Point is important as you will hear and read these terms a lot in the trading environment.
Risk Management is probably the most important use of Pips and Point though, because risk management is the most important part of trading.
Understanding the value of a pip or a point allows you to set your stop loss levels for the trades and avoid margin calls and liquidations.
Now that the concepts of pip and point are clear I will only refer to Point as that is what Metatrader uses.
How Do You Calculate The Pip Value?
Calculating the Pip value is not as straight forward as you may think, that is why a Pip Value Calculator comes in handy.
The Pip Value is influenced by different factors:
- The pair, or asset, that you are trading
- The leverage you may be using
- The position size of the trade
- The currency your trading account is funded with
All of the above factors come together and contribute to the value of every price movement and they can make the calculation confusing.
To calculate the Pip value:
- Divide 1 pip by the exchange of the pair
- Multiply the pip value by the units of currencies traded
- Multiply the pip value of the position by the exchange rate of that currency with your account currency
Example of the pip value of a position of 1 lot of EURUSD quoted at 1.2500 in a USD funded account:
- 0.0001 / 1.2500 = 0.00008 EUR per pip per unit
- 0.00008 x 100.000 (1 lot is 100.000 units) = 8 EUR per pip of price movement
- 8 EUR x 1.2500 EURUSD = 10 USD value per pip
If the quote currency (USD in the example) is different from the account currency you will need to apply the proper exchange rate.
The process is the same to calculate the point value but you will use the number of points instead of pip.
What Is the Pip Value Calculator For Metatrader?
There is a reason why Metatrader is one of the most popular trading platforms.
Both MT4 and MT5 have a function out of the box to extract the value of a tick.
The Pip Value Calculator Indicator for MT4 and MT5 is a tool that allows you to easily see the value of a tick for the current pair and the desired position size.
The Pip Value Indicator is designed to be easy to use and understand.
You can load the indicator directly on the chart and it will show the value of 1 Tick (or 1 Point) for a default position of 1 Lot.
You can change the default position in the parameters and even change the position size in the panel to see the new tick value.
The Pip Value Calculator Indicator works with all of the following assets:
- Forex Currency Pairs
- Precious Metals like Gold and Silver
- Indices quoted by the broker
- Commodities like petrol
- Cryptocurrencies, if available in your broker
- Stocks, if available in your broker
Pip Value Calculator Indicator For MT4 and MT5
You can download Pip Value Calculator Indicator for MT4 and MT5 for FREE from the following pages.
Please note that Pip Value Calculator is an indicator for the Metatrader Platform and you will need to have the platform already installed to use it.
The indicators are available for Free Download, links below.
The indicator is easy to use and allows to do everything through drag and drop on chart.
You can download the following indicators from the respective pages in the links below:
Summary
In this article you learned more about the definition of Pip, Point and Tick.
You also understand what they are used for and how to calculate them.
A clear understanding and use of Point and Tick value is vital in risk management.
We shared the Pip Value Calculator indicator for MT4 and MT5 and provided download links
Pip Value Calculator FAQ
What are Pip, Point and Tick?
Pip is the traditional way of quantifying a change in an exchange rate and it used to be the unit of the last decimal of the exchange rate. 0.0001 for pairs quoted with 4 decimals like EURUSD and 0.01 for pairs quoted with 2 decimals like USDJPY.
Due to the evolution to quotation with 3 and 5 decimals the concepts of Point and Tick come in.
Point and Tick, which are normally the same, are 1 unit of the last decimals of the exchange rate. Nowadays this is 0.00001 for assets quoted in 5 decimals and 0.001 for assets quoted with 3 decimals.
What is a pip used for?
Traders use pips in risk management and to quantify quotation changes.
How do you calculate the pip value?
To calculate the Pip value:
- Divide 1 pip by the exchange of the pair
- Multiply the pip value by the units of currencies traded
- Multiply the pip value of the position by the exchange rate of that currency with your account currency
What is the Pip Value Calculator Indicator for MT4 and MT5?
The Pip Value Calculator Indicator for MT4 and MT5 is a tool that allows you to easily see the value of a tick for the current pair and the desired position size.
What instruments I can use with the Pip Value Indicator?
You can use all of the assets offered by your Metatrader Broker
Including:
- Forex Currency Pairs
- Indices
- Precious Metals like Gold
- Stocks
- Cryptocurrencies
- Commodities
Where do I find the Pip Value Calculator Indicator?
You can download the following indicators from the respective pages in the links below:
MT4 Pip Value Calculator Indicator Download
MT5 Pip Value Calculator Indicator Download
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